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The Distributional Effects of Carbon Regulation: Why Auctioned Carbon Permits are Attractive and Feasible

Author

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  • Peter Cramton

    (Economics Department, University of Maryland)

  • Suzi Kerr

Abstract

We examine the distributional effects of carbon regulation. An auction of carbon permits is the best way to achieve carbon caps set by international negotiation to limit global climate change. An auction is preferred to grandfathering (giving polluters permits in proportion to past pollution), because it allows reduced tax distortions, provides more flexibility in distribution of costs, provides greater incentives for innovation, and reduces the need for politically contentious arguments over the allocation of rents.

Suggested Citation

  • Peter Cramton & Suzi Kerr, 1999. "The Distributional Effects of Carbon Regulation: Why Auctioned Carbon Permits are Attractive and Feasible," Papers of Peter Cramton 99eedecr, University of Maryland, Department of Economics - Peter Cramton, revised Feb 1998.
    • Handle: RePEc:pcc:pccumd:99eedecr
    Note: Working Paper
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    File URL: https://www.cramton.umd.edu/papers1995-1999/99ee-distributional-effects-of-carbon-regulation.pdf
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    References listed on IDEAS

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    1. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1366-1400.
    2. Cason, Timothy N. & Plott, Charles R., 1996. "EPA's New Emissions Trading Mechanism: A Laboratory Evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 133-160, March.
    3. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39, July.
    4. Ian W.H. Parry, 2002. "Pollution Taxes and Revenue Reycling," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 15, pages 235-248, Edward Elgar Publishing.
    5. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 675-689.
    6. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-138, March.
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    Citations

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    Cited by:

    1. James Boyce & Matthew Riddle & Mark D. Brenner, 2005. "A Chinese Sky Trust? Distributional Impacts of Carbon charges and Revenue Recycling in China," Working Papers wp_brenner_riddle_boyce, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Brenner, Mark & Riddle, Matthew & Boyce, James K., 2007. "A Chinese sky trust?: Distributional impacts of carbon charges and revenue recycling in China," Energy Policy, Elsevier, vol. 35(3), pages 1771-1784, March.
    3. Lambie, Neil Ross, 2009. "The role of real options analysis in the design of a greenhouse gas emissions trading scheme," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 47626, Australian Agricultural and Resource Economics Society.
    4. John Pezzey, 2003. "Emission Taxes and Tradeable Permits A Comparison of Views on Long-Run Efficiency," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(2), pages 329-342, October.
    5. Roberto Burguet & Jaume Sempere, 2010. "Trade of Permits for Greenhouse Gas Emissions: Bilateral Trade Need not be the Answer," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 46(4), pages 495-509, August.
    6. Roberto Burguet & Bilateral, "undated". "Trade of Permits for Greenhouse Emissions," Working Papers 163, Barcelona School of Economics.
    7. Pezzey, John C.V., 2001. "Distributing the Value of a Country’s Tradeable Carbon Permits," 2001 Conference (45th), January 23-25, 2001, Adelaide, Australia 125832, Australian Agricultural and Resource Economics Society.
    8. Matthew Riddle & James Boyce, 2007. "Cap and Dividend: How to Curb Global Warming while Protecting the Incomes of American Families," Working Papers wp150, Political Economy Research Institute, University of Massachusetts at Amherst.
    9. Svetlana Maslyuk & Dinusha Dharmaratna, 2011. "Comparative analysis of the existing and proposed ETS," Monash Economics Working Papers 15-11, Monash University, Department of Economics.
    10. Roberto Burguet & Jaume Sempere, "undated". "Trade of Permits for Greenhouse Gas Emissions," Working Papers 350, Barcelona School of Economics.

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    More about this item

    Keywords

    Auctions; Carbon Auctions; Pollution;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels

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