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International Emission Permit Markets with Refunding

34 Pages Posted: 5 Mar 2011 Last revised: 1 Sep 2011

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Ralph Winkler

University of Bern - Department of Economics; University of Bern - Oeschger Centre for Climate Change Research

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Date Written: January 6, 2011

Abstract

We propose a blueprint for an international emission permit market such as the EU trading scheme. Each country decides on the amount of permits it wants to offer. A fraction of these permits is freely allocated, the remainder is auctioned. Revenues from the auction are collected in a global fund and reimbursed to member countries in fixed proportions. We show that international permit markets with refunding lead to outcomes in which all countries tighten the issuance of permits and are better off compared to standard international permit markets. If the share of freely allocated permits is sufficiently small, we obtain approximately socially optimal emission reductions.

Keywords: climate change mitigation, global refunding scheme, international permit markets, international agreements, tradeable permits

JEL Classification: H23, Q54, H41

Suggested Citation

Gersbach, Hans and Winkler, Ralph, International Emission Permit Markets with Refunding (January 6, 2011). European Economic Review, Vol. 55, pp. 759-773, 2011. Available at SSRN: https://ssrn.com/abstract=1773609

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

ZĂĽrichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Ralph Winkler (Contact Author)

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, 3001
Switzerland
+41 31 631 4508 (Phone)

HOME PAGE: http://www.ralph-winkler.de

University of Bern - Oeschger Centre for Climate Change Research ( email )

Zähringerstrasse 25
Bern, 3012
Switzerland

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