The efficiency, equity and politics of emissions permit trading

Myrna Wooders and Benjamin Zissimos

No 269357, Economic Research Papers from University of Warwick - Department of Economics

Abstract: This paper illustrates that an international permit trading system may hurt relatively poor countries by making associated economic activities una¤ordable. A model is constructed in which the free market solution is Pareto ine¢cient as a result of pollution. The introduction of tradable permits allows pollution to be internalised, and brings about an increase in the total social surplus. But when incomes vary, this may not lead to a Pareto improvement; those in poor countries stop the polluting activity because they cannot a¤ord to do otherwise. Only those in relatively rich countries are made better o¤. This may explain why poor countries are reluctant to ratify the Kyoto Protocol, itself advocating a permit trading scheme. The politico-economic implications of permit trading are also examined. We show that the democratic requirements for rati…- cation impose a lower bound on pollution reduction that can be achieved through a system of pollution permits with trade.

Keywords: Environmental Economics and Policy; International Relations/Trade (search for similar items in EconPapers)
Pages: 27
Date: 2001-03-03
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Related works:
Working Paper: The Efficiency, Equity and Politics of Emission Permit Trading (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:269357

DOI: 10.22004/ag.econ.269357

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