Using the allocation of emission permits for strategic trade purposes

Christos Constantatos, Eleftherios Filippiadis () and Eftichios Sartzetakis ()

Journal of Regulatory Economics, 2014, vol. 45, issue 3, 259-280

Abstract: We show that the presence of transaction costs in emission permit markets challenges the common presumption that grandfathering permits corresponds to lump-sum transfers with no strategic effects on output. Fixed transaction-costs influence firms’ decision to participate in the permits market, while variable transaction-costs affect firms’ output choice by creating a wedge between buyers’ and sellers’ opportunity cost of using permits. Thus, permit grandfathering can be used as a strategic trade instrument even when firms are price takers in the permit markets. Grandfathered permits differ from subsidies in that the stimulus they provide is bounded exogenously and rather limited. Copyright Springer Science+Business Media New York 2014

Keywords: Tradable emissions permits; Strategic trade policy; D4; F1; Q5; Q58 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (5)

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Working Paper: Using the allocation of emission permits for Strategic Trade purposes (2011)
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DOI: 10.1007/s11149-014-9244-0

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