Allocation and banking in Korean permits trading

G.L. Cho, Hyo-Sun Kim and Y.D. Kim

Resources Policy, 2010, vol. 35, issue 1, 36-46

Abstract: This paper investigates how Korean industry would respond to four different allocation and banking options in CO2 permit trading within a fully dynamic computational general equilibrium framework. Four different allocations are categorized--a uniform allocation and three performance-based allocations. We explore that performance-based allocation and banking lower losses in Korean potential GDP, allowing energy-intensive industry more flexibility in inter-temporal decision making on purchasing and selling permits. The steel industry can derive a particular advantage from a performance-based allocation with respect to energy use, while the semiconductor industry would prefer a performance-based allocation with respect to value-added. The two key conclusions are (i) the Korean economy should replace an absolute allocation with a performance-based allocation, and (ii) the banking of permits enables market players to reallocate allowances more efficiently in a long-term commitment period. These results support the findings of the key study by Kling and Rubin (1997).

Keywords: Permits; trading; Bankable; permits; Performance-based; allocation; Initial; allocation; Dynamic; CGE; modeling (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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