IDEAS home Printed from https://ideas.repec.org/p/ags/aaea01/20491.html
   My bibliography  Save this paper

The Environmentally Optimal Trading Ratio

Author

Listed:
  • Woodward, Richard T.

Abstract

In the standard economic model of cap and trade policies, the regulator is assumed to place zero value on pollution reductions below the cap. This paper considers an alternative case, where the policy makers can manipulate the rules of the program to achieve improved environmental performance. This is achieved by manipulating the trading ratio, the units of pollution credits that are obtained for each unit of pollution reduction. Using a parsimonious model of a transferable discharge permits program, we identify the environmentally optimal trading ratio that maximizes the environmental gains of trading. The model suggests an alternative explanation why non-unitary trading ratios are common and is a counterpoint to the cost-minimizing model that predominates in economics. We conclude by recommending that a middle-ground should be sought, where both environmental gains and cost efficiencies are given weight.

Suggested Citation

  • Woodward, Richard T., 2001. "The Environmentally Optimal Trading Ratio," 2001 Annual meeting, August 5-8, Chicago, IL 20491, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea01:20491
    DOI: 10.22004/ag.econ.20491
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/20491/files/sp01wo02.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.20491?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    2. Arun S. Malik & David Letson & Stephen R. Crutchfield, 1993. "Point/Nonpoint Source Trading of Pollution Abatement: Choosing the Right Trading Ratio," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 959-967.
    3. Richard D. Horan, 2001. "Differences in Social and Public Risk Perceptions and Conflicting Impacts on Point/Nonpoint Trading Ratios," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 934-941.
    4. Dana L. Hoag & Jennie S. Hughes-Popp, 1997. "Theory and Practice of Pollution Credit Trading in Water Quality Management," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 19(2), pages 252-262.
    5. Randall, Alan & Taylor, Michael A., 2000. "Incentive-Based Solutions To Agricultural Environmental Problems: Recent Developments In Theory And Practice," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(2), pages 1-14, August.
    6. ,, 2000. "Problems And Solutions," Econometric Theory, Cambridge University Press, vol. 16(2), pages 287-299, April.
    7. Shortle, James S., 1987. "Allocative Implications Of Comparisons Between The Marginal Costs Of Point And Nonpoint Source Pollution Abatement," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 16(1), pages 1-7, April.
    8. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
    9. Randall, Alan & Taylor, Michael A., 2000. "Incentive-Based Solutions to Agricultural Environmental Problems: Recent Developments in Theory and Practice," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 32(2), pages 221-234, August.
    10. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521311120.
    11. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249.
    12. McKitrick, Ross, 1999. "A Derivation of the Marginal Abatement Cost Curve," Journal of Environmental Economics and Management, Elsevier, vol. 37(3), pages 306-314, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Isla Globus‐Harris, 2020. "An Impossible Goal: When Trade Ratios Cannot Achieve No‐Net‐Loss," Southern Economic Journal, John Wiley & Sons, vol. 86(4), pages 1372-1392, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Horan, Richard D. & Shortle, James S. & Abler, David G. & Ribaudo, Marc, 2001. "The Design And Comparative Economic Performance Of Alternative Second-Best Point/Nonpoint Trading Markets," Staff Paper Series 11595, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    2. James Shortle & Richard D. Horan, 2013. "Policy Instruments for Water Quality Protection," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 111-138, June.
    3. Peter Heindl & Peter J. Wood & Frank Jotzo, 2014. "Combining International Cap-and-Trade with National Carbon Taxes," CCEP Working Papers 1418, Centre for Climate & Energy Policy, Crawford School of Public Policy, The Australian National University.
    4. Sergey Rabotyagov & Hongli Feng & Catherine L. Kling, 2006. "Optimal Design of Permit Markets with an Ex Ante Pollution Target," Center for Agricultural and Rural Development (CARD) Publications 06-wp430, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    5. James Shortle & Richard D. Horan, 2017. "Nutrient Pollution: A Wicked Challenge for Economic Instruments," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-39, April.
    6. Sami Hautakangas & Markku Ollikainen, 2019. "Nutrient Trading Between Wastewater Treatment Plants in the Baltic Sea Region," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(2), pages 533-556, June.
    7. Horan, Richard D. & Lupi, Frank, 2003. "Tradable Risk Permits To Prevent Future Introductions Of Alien Invasive Species Into The Great Lakes," 2003 Annual meeting, July 27-30, Montreal, Canada 22111, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Chuang Li & Subhash C. Ray, 2021. "Opportunity Cost and Employment Effect of Emission Reduction: An Inter-Industry Comparison of Targeted Pollution Reduction," Working papers 2021-13, University of Connecticut, Department of Economics.
    9. Charles Raux, 2011. "Downstream Emissions Trading for Transport," Transportation Research, Economics and Policy, in: Werner Rothengatter & Yoshitsugu Hayashi & Wolfgang Schade (ed.), Transport Moving to Climate Intelligence, chapter 0, pages 209-226, Springer.
    10. Stavins, Robert, 2004. "Environmental Economics," RFF Working Paper Series dp-04-54, Resources for the Future.
    11. Charles Raux, 2008. "Tradable driving rights in urban areas: their potential for tackling congestion and traffic-related pollution," Post-Print halshs-00185012, HAL.
    12. Robert N. Stavins, 1998. "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 69-88, Summer.
    13. Weber, Thomas A. & Neuhoff, Karsten, 2010. "Carbon markets and technological innovation," Journal of Environmental Economics and Management, Elsevier, vol. 60(2), pages 115-132, September.
    14. Woodward, Richard T., 2011. "Double-dipping in environmental markets," Journal of Environmental Economics and Management, Elsevier, vol. 61(2), pages 153-169, March.
    15. Robert N. Stavins, 2011. "The Problem of the Commons: Still Unsettled after 100 Years," American Economic Review, American Economic Association, vol. 101(1), pages 81-108, February.
    16. Horan, Richard D. & Lupi, Frank, 2005. "Tradeable risk permits to prevent future introductions of invasive alien species into the Great Lakes," Ecological Economics, Elsevier, vol. 52(3), pages 289-304, February.
    17. Catherine L. Kling, 2011. "Economic Incentives to Improve Water Quality in Agricultural Landscapes: Some New Variations on Old Ideas," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(2), pages 297-309.
    18. Ancev, Tihomir & Stoecker, Arthur L. & Storm, Daniel E. & White, Michael J., 2006. "The Economics of Efficient Phosphorus Abatement in a Watershed," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(3), pages 1-20, December.
    19. Charles Raux, 2009. "Umweltzertifikate im Verkehrsbereich," Post-Print halshs-01735915, HAL.
    20. Raux, Charles & Marlot, Grégoire, 2005. "A system of tradable CO2 permits applied to fuel consumption by motorists," Transport Policy, Elsevier, vol. 12(3), pages 255-265, May.

    More about this item

    Keywords

    Environmental Economics and Policy;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea01:20491. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.