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Permit allocation in emissions trading using the Boltzmann distribution

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  • Park, Ji-Won
  • Kim, Chae Un
  • Isard, Walter

Abstract

In emissions trading, the initial allocation of permits is an intractable issue because it needs to be essentially fair to the participating countries. There are many ways to distribute a given total amount of emissions permits among countries, but the existing distribution methods, such as auctioning and grandfathering, have been debated. In this paper we describe a new method for allocating permits in emissions trading using the Boltzmann distribution. We introduce the Boltzmann distribution to permit allocation by combining it with concepts in emissions trading. We then demonstrate through empirical data analysis how emissions permits can be allocated in practice among participating countries. The new allocation method using the Boltzmann distribution describes the most probable, natural, and unbiased distribution of emissions permits among multiple countries. Simple and versatile, this new method holds potential for many economic and environmental applications.

Suggested Citation

  • Park, Ji-Won & Kim, Chae Un & Isard, Walter, 2012. "Permit allocation in emissions trading using the Boltzmann distribution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(20), pages 4883-4890.
    • Handle: RePEc:eee:phsmap:v:391:y:2012:i:20:p:4883-4890
    DOI: 10.1016/j.physa.2012.05.052
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    3. Ji, Xiang & Li, Guo & Wang, Zhaohua, 2017. "Allocation of emission permits for China’s power plants: A systemic Pareto optimal method," Applied Energy, Elsevier, vol. 204(C), pages 607-619.
    4. Ji-Won Park & Jaeup U. Kim & Cheol-Min Ghim & Chae Un Kim, 2021. "The Boltzmann fair division for distributive justice," Papers 2109.11917, arXiv.org, revised Nov 2021.
    5. Yanbin Li & Zhen Li & Min Wu & Feng Zhang & Gejirifu De, 2018. "Regional-Level Allocation of CO 2 Emission Permits in China: Evidence from the Boltzmann Distribution Method," Sustainability, MDPI, vol. 10(8), pages 1-16, July.
    6. Zhang, Yue-Jun & Wang, Ao-Dong & Da, Ya-Bin, 2014. "Regional allocation of carbon emission quotas in China: Evidence from the Shapley value method," Energy Policy, Elsevier, vol. 74(C), pages 454-464.
    7. Xunzhang Pan & Fei Teng, 2017. "Assessment of China’s Mitigation Targets in an Effort-Sharing Framework," Sustainability, MDPI, vol. 9(7), pages 1-16, June.
    8. Xu, Jiuping & Yang, Xin & Tao, Zhimiao, 2015. "A tripartite equilibrium for carbon emission allowance allocation in the power-supply industry," Energy Policy, Elsevier, vol. 82(C), pages 62-80.
    9. Yali Zhang & Yihan Wang & Xiaoshu Hou, 2019. "Carbon Mitigation for Industrial Sectors in the Jing-Jin-Ji Urban Agglomeration, China," Sustainability, MDPI, vol. 11(22), pages 1-13, November.
    10. Zhengning Pu & Hui Wang & Haili Bian & Jiasha Fu, 2015. "Sustainable Lake Basin Water Resource Governance in China: The Case of Tai Lake," Sustainability, MDPI, vol. 7(12), pages 1-13, December.
    11. Qianting Zhu & Wenwu Tang, 2017. "Regional-Level Carbon Allocation in China Based on Sectoral Emission Patterns under the Peak Commitment," Sustainability, MDPI, vol. 9(4), pages 1-18, April.
    12. Siqin Xiong & Yushen Tian & Junping Ji & Xiaoming Ma, 2017. "Allocation of Energy Consumption among Provinces in China: A Weighted ZSG-DEA Model," Sustainability, MDPI, vol. 9(11), pages 1-12, November.
    13. Yue-Jun Zhang & Jun-Fang Hao, 2017. "Carbon emission quota allocation among China’s industrial sectors based on the equity and efficiency principles," Annals of Operations Research, Springer, vol. 255(1), pages 117-140, August.
    14. Feng, Zhiying & Tang, Wenhu & Niu, Zhewen & Wu, Qinghua, 2018. "Bi-level allocation of carbon emission permits based on clustering analysis and weighted voting: A case study in China," Applied Energy, Elsevier, vol. 228(C), pages 1122-1135.

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