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On the Treatment of Emissions Trading and Green and White Certificates in Cost–Benefit Analysis

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Abstract

There are conflicting views on how to handle permits for greenhouse gases in cost-bene fit analysis. This paper aims at clarifying within a simple general equilibrium model how to treat di fferent kinds of tradable permits in economic evaluations of projects. Within a framework that reminds of the EU Emissions Trading System (EU ETS), the paper looks at cost-benefi t rules for a small project providing a public good, interpreted as a shortcut for infrastructure, using a fossil fuel and a renewable as inputs. In addition, it illustrates the Samuelson condition for the optimal provision of the public good, discusses briefly how to assess the EU permit system for sectors not covered under the EU ETS, as well as taxes and permits used to combat acid rain, and provides an illustration of the magnitude of the bias incurred if permits are valued at the marginal damage cost. The paper also introduces electricity ("green") certi ficates, a cousin to tradable permits, as well as well as energy savings ("white") certi ficates. Finally, a cap on the output of a commodity is considered.

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  • Johansson, Per-Olov, 2016. "On the Treatment of Emissions Trading and Green and White Certificates in Cost–Benefit Analysis," CERE Working Papers 2016:13, CERE - the Center for Environmental and Resource Economics.
    • Handle: RePEc:hhs:slucer:2016_013
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    File URL: http://www.cere.se/en/research/publications/778-on-the-treatment-of-emissions-trading-and-green-and-white-certificates-in-cost-benefit-analysis.html
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    More about this item

    Keywords

    Cost-benefit analysis; greenhouse gases; emissions trading; tradable permits; general equilibrium; Samuelson condition; EU ETS; non-ETS; acid rain; electricity certificates; renewable portfolio standards; energy savings certificates; output cap;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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