Permit allocation in emissions trading using the Boltzmann distribution

Ji-Won Park, Chae Un Kim and Walter Isard

Physica A: Statistical Mechanics and its Applications, 2012, vol. 391, issue 20, 4883-4890

Abstract: In emissions trading, the initial allocation of permits is an intractable issue because it needs to be essentially fair to the participating countries. There are many ways to distribute a given total amount of emissions permits among countries, but the existing distribution methods, such as auctioning and grandfathering, have been debated. In this paper we describe a new method for allocating permits in emissions trading using the Boltzmann distribution. We introduce the Boltzmann distribution to permit allocation by combining it with concepts in emissions trading. We then demonstrate through empirical data analysis how emissions permits can be allocated in practice among participating countries. The new allocation method using the Boltzmann distribution describes the most probable, natural, and unbiased distribution of emissions permits among multiple countries. Simple and versatile, this new method holds potential for many economic and environmental applications.

Keywords: Climate change; Emissions trading; Permit allocation; Entropy maximization; Fair distribution (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:391:y:2012:i:20:p:4883-4890

DOI: 10.1016/j.physa.2012.05.052

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