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Emission permit trading with a self-interested regulator

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  • Tapio Palokangas

    (Helsinki GSE, University of Helsinki)

Abstract

I examine the welfare effects of emission permit trading in an economy where the use of energy in production generates welfare-harming emissions, there is a regulator that sets industry-specific emission permits and the industries influence the regulator by paying political contributions. I show that policy with nontraded emission permits establishes aggregate production efficiency. Emission permit trading hampers efficiency and welfare by increasing the use of emitting inputs in dirty and decreasing that in clean industries.

Suggested Citation

  • Tapio Palokangas, 2019. "Emission permit trading with a self-interested regulator," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 21(3), pages 413-426, July.
    • Handle: RePEc:spr:envpol:v:21:y:2019:i:3:d:10.1007_s10018-019-00236-8
    DOI: 10.1007/s10018-019-00236-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Emission caps; Emission permit trading; Command-and-control instruments; Common agency games;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • F15 - International Economics - - Trade - - - Economic Integration
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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