Emission permit trading with a self-interested regulator

Tapio Palokangas

Environmental Economics and Policy Studies, 2019, vol. 21, issue 3, No 4, 413-426

Abstract: Abstract I examine the welfare effects of emission permit trading in an economy where the use of energy in production generates welfare-harming emissions, there is a regulator that sets industry-specific emission permits and the industries influence the regulator by paying political contributions. I show that policy with nontraded emission permits establishes aggregate production efficiency. Emission permit trading hampers efficiency and welfare by increasing the use of emitting inputs in dirty and decreasing that in clean industries.

Keywords: Emission caps; Emission permit trading; Command-and-control instruments; Common agency games (search for similar items in EconPapers)
JEL-codes: F15 H23 Q53 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10018-019-00236-8

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