Is Trade in Permits Good for the Environment?

Harvey Lapan and Shiva Sikdar ()
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Shiva Sikdar: Keele University

Environmental & Resource Economics, 2019, vol. 72, issue 2, No 6, 510 pages

Abstract: Abstract We analyze the impact of trade in emission permits on environmental policy when countries trade a differentiated good. Pollution is always higher with tradable permits as compared to the case where permits are not internationally tradable. If pollution is a pure global public bad, i.e., the marginal damage from transboundary pollution is the same as that from local pollution, the permit price under trade equals the domestic marginal damage from own emissions. If pollution is not a pure global public bad, i.e., the marginal damage from transboundary pollution is less than that from local pollution, trade results in a permit price lower than the domestic marginal damage from own emissions—pollution is higher under trade relative to autarky. Regardless of the nature of transboundary pollution, the permit price (equivalent pollution tax) is lower and pollution is higher with internationally tradable permits than with nontradable permits.

Keywords: Emission permit trade; Strategic environmental policy; Leakage; Intra-industry trade (search for similar items in EconPapers)
JEL-codes: F18 H23 Q56 Q58 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (12)

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DOI: 10.1007/s10640-017-0202-z

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