The Race for Polluting Permits

Susana Peralta () and Thierry Bréchet

No 6209, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: International markets for tradable emission permits (TEP) co-exist with national energy taxation. A firm trading emission permits in the international market also pays energy taxes in its host country, thus creating an interaction between the international TEP-market and national energy taxes. In this paper we model that interaction in a framework of a perfectly competitive international TEP-market, where heterogeneous firms trade their TEP endowments. National governments set energy taxes non-cooperatively so as to maximize fiscal revenue from energy and profit taxes. We identify the driving forces behind Nash equilibrium taxes. We show how they depend on the total amount of TEPs in the market, on firms' TEP-endowment and on the number of participating countries. We also show how energy taxation varies with the introduction of the market on a previously unregulated world. Finally, we highlight the fact that the TEP-market does not achieve abatement cost efficiency, despite its being perfectly competitive.

Keywords: Fiscal competition; Kyoto protocol; Tradable permits (search for similar items in EconPapers)
JEL-codes: H23 H73 Q48 Q52 (search for similar items in EconPapers)
Date: 2007-03
New Economics Papers: this item is included in nep-ene, nep-env and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: The race for polluting permits (2007)
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