On National and International Trade in Greenhouse Gas Emission Permits

42 Pages Posted: 12 Jun 2002

See all articles by Katrin Rehdanz

Katrin Rehdanz

University of Kiel; University of Hamburg - Centre for Marine and Climate Research (ZMK); Kiel Institute for the World Economy

Richard S. J. Tol

VU University Amsterdam - Institute for Environmental Studies (IVM); Carnegie Mellon University - Center for Integrated Study of the Human Dimensions of Global Change; University of Hamburg - Centre for Marine and Climate Research (ZMK); Princeton University

Date Written: June 2002

Abstract

This paper considers the question under what conditions domestic markets of emission permits would and should merge to become an international market. Emission permits are licenses, and so governments would need to recognize other countries' permits. In a two-county model, we find that it is in both countries' interests to form an international market, and it may even be beneficial to the environment. Three different policy instruments of the importing country are examined, namely a price instrument (tariff) and two quantity instruments (discount and import quota). All instruments restrict trade. The importing country (and regulator) prefers an import tariff and an import quota to a carbon discount. If the exporting country releases additional permits, the importing country should not try to keep total emissions constant, as that would be ineffective if not counterproductive. Instead, the importing country should aim to keep the total import constant; this would impose costs on the exporting country that are independent of the policy instrument; an import quota would be the cheapest option for the importing country. Compliance and liability issues constrain the market further. However, both the importing and the exporting country would prefer that the permit seller is liable in case of non-compliance, as sellers' liability would less constrain the market.

Keywords: Climate Change, Emissions Trading, Environmental Policy, Liability and Compliance

JEL Classification: Q25, Q28

Suggested Citation

Rehdanz, Katrin and Tol, Richard S. J., On National and International Trade in Greenhouse Gas Emission Permits (June 2002). Available at SSRN: https://ssrn.com/abstract=315739 or http://dx.doi.org/10.2139/ssrn.315739

Katrin Rehdanz (Contact Author)

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

University of Hamburg - Centre for Marine and Climate Research (ZMK) ( email )

Troplowitzstrasse 7
D-22529 Hamburg
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Richard S. J. Tol

VU University Amsterdam - Institute for Environmental Studies (IVM) ( email )

De Boelelaan 1115
Amsterdam, 1081 HV
Netherlands
+31 20 444 9555 (Phone)
+31 20 444 9553 (Fax)

Carnegie Mellon University - Center for Integrated Study of the Human Dimensions of Global Change

Pittsburgh, PA 15213-3890
United States

University of Hamburg - Centre for Marine and Climate Research (ZMK)

Troplowitzstrasse 7
D-22529 Hamburg
Germany

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
241
Abstract Views
2,556
rank
151,035
PlumX Metrics