Incentives for Investment in Advanced Pollution Abatement Technology in Emission Permit Markets with Banking

Daniel Phaneuf and Till Requate ()

Environmental & Resource Economics, 2002, vol. 22, issue 3, 369-390

Abstract: We examine the incentives that firms have to invest in cleaner abatementtechnology when the banking of permits is allowed in emission permittrading schemes. We show that under certainty permit banking can distortincentives for investment and lead to a sub-optimal amount of investmentspending. Under imperfect information, aggregate abatement costuncertainty and investment irreversibility provide arguments for allowingbanking. We generalize the model to consider these, showing that somebanking is desirable but that it need not be the case that the privatebanking solution is optimal. Copyright Kluwer Academic Publishers 2002

Keywords: abatement technology investment; emission banking; marketable permits (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1023/A:1016097000190

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