International Emission Permit Markets with Refunding
34 Pages Posted: 5 Mar 2011 Last revised: 1 Sep 2011
Date Written: January 6, 2011
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: Suggested Citation