Reduced Allowability and the Allocation of Emission Abatement

27 Pages Posted: 18 Nov 2015

See all articles by Sabine Aresin

Sabine Aresin

Max Planck Institute for Tax Law and Public Finance

Date Written: November 4, 2015

Abstract

Introducing discounts on Certified Emission Reductions from the Clean Development Mechanism is often treated as if it only imposed a substitution effect on a firm’s decision between domestic and abroad abatement. Applying a cost minimization approach with a representative firm, I can show that reduced allowability generates a quantity effect in addition to the substitution effect. This quantity effect counteracts the substitution effect for abroad abatement. It may even cause abroad abatement to increase as a result of reduced allowability for Certified Emission Reductions. The results are robust to introducing a secondary market for emission credits, given endogenous prices.

Keywords: Clean Development Mechanism, Import restrictions, Allowability, Green House Gas offset, Abatement

JEL Classification: D21, F53, Q58

Suggested Citation

Aresin, Sabine, Reduced Allowability and the Allocation of Emission Abatement (November 4, 2015). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2015-12, Available at SSRN: https://ssrn.com/abstract=2691957

Sabine Aresin (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

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