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Tradable pollution permits in dynamic general equilibrium: can optimality and acceptability be reconciled?

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  • BRECHET, Thierry
  • JOUVET, Pierre-André
  • ROTILLON, Gilles

Abstract

In this paper we study the dynamic general equilibrium path of an economy and the associated optimal growth path in a two-sector overlapping generation model with a stock pollutant. A sector (power generation) is polluting, and the other (final good) is not. Pollution is regulated by tradable emission permits. The issue is to see whether the optimal growth path can be replicated in equilibrium with pollution permits, given that some permits must be issued free of charge for the sake of political acceptability. We first analyze the many adverse impacts of free allowances, and then we propose a policy rule that allows optimality and acceptability to be reconciled.
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Suggested Citation

  • BRECHET, Thierry & JOUVET, Pierre-André & ROTILLON, Gilles, 2013. "Tradable pollution permits in dynamic general equilibrium: can optimality and acceptability be reconciled?," LIDAM Reprints CORE 2478, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2478
    DOI: 10.1016/j.ecolecon.2013.04.004
    Note: In : Ecological Economics, 91, 89-97, 2013
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    Cited by:

    1. Yu-Hong Cao & Jian-Xin You & Hu-Chen Liu, 2017. "Optimal Environmental Regulation Intensity of Manufacturing Technology Innovation in View of Pollution Heterogeneity," Sustainability, MDPI, vol. 9(7), pages 1-14, July.
    2. Bréchet, Thierry & Jouvet, Pierre-André & Rotillon, Gilles, 2013. "Tradable pollution permits in dynamic general equilibrium: Can optimality and acceptability be reconciled?," Ecological Economics, Elsevier, vol. 91(C), pages 89-97.

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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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