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On the Strategic Effect of International Permits Trading on Local Pollution

Fabio Antoniou () and Efthymia Kyriakopoulou ()
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Efthymia Kyriakopoulou: Swedish University of Agricultural Sciences

Environmental & Resource Economics, 2019, vol. 74, issue 3, 1299-1329

Abstract: Abstract We introduce a model of strategic environmental policy where two firms compete à la Cournot in a third market in the presence of multiple pollutants. Two types of pollutants are introduced: a local and a transboundary one. The regulator can only control local pollution as transboundary pollution is regulated internationally. We illustrate that when transboundary pollution is regulated through the use of tradable emission permits instead of non-tradable ones then a new strategic effect appears which has not been identified thus far. In this case, local pollution increases further. We caution that linking permit markets across regions may be welfare detrimental. We also provide evidence from the implementation of EU ETS over the pollution of particulate matters ( $$PM_{10}$$ P M 10 and $$PM_{2.5})$$ P M 2.5 ) .

Keywords: Environmental regulation; Multiple pollutants; (Non) tradable permits; Strategic interactions (search for similar items in EconPapers)
JEL-codes: F12 F18 Q58 (search for similar items in EconPapers)
Date: 2019
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