Environmental Economics and Modeling Marketable Permits: A Survey

Asian Pacific Financial Markets, Vol. 17, No. 4, 2010

21 Pages Posted: 19 Feb 2009 Last revised: 5 Dec 2010

See all articles by Luca Taschini

Luca Taschini

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment; University of Verona - Department of Economics

Date Written: February 16, 2009

Abstract

This paper reviews fundamental concepts in environmental economics and explores theoretical results regarding the choice of the key policy instruments for the control of externalities: taxes, subsidies and marketable permits. The paper explains why today market mechanisms are increasingly being used as a tool for allocating unpriced rights and scarce resources. We survey how significant market imperfections, a pre-existing regulatory environment and concentration in both permit and output markets can impede the proper functioning of a permit system. The main factors that affect the effectiveness of marketable permits are then discussed. Given the importance of understanding the emission permit price formation, we overview recent attempts at developing valid price models for emission permits, taking into account banking and borrowing opportunities, pollution abatement measures, strategic trading interactions and the presence of asymmetric information in the permit market.

Keywords: Dynamic Price Modeling, Emission Permits, Market Imperfections

JEL Classification: Q50, Q58, Q56, C60, G13

Suggested Citation

Taschini, Luca, Environmental Economics and Modeling Marketable Permits: A Survey (February 16, 2009). Asian Pacific Financial Markets, Vol. 17, No. 4, 2010. Available at SSRN: https://ssrn.com/abstract=1346352

Luca Taschini (Contact Author)

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment ( email )

Houghton Street
London, WC2A 2AE
Great Britain

University of Verona - Department of Economics ( email )

Via Cantarane 24
Verona, Verona 37129
Italy

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