Does emission discrimination improve environmental effectiveness of emission trading schemes? A duopoly approach

Zhe Chen, Yue Su, Xue-ying Wang and You Wu

Economic Research-Ekonomska Istraživanja, 2021, vol. 34, issue 1, 2210-2224

Abstract: In this paper, we theoretically analyze that how emission discrimination policies affect the environmental effectiveness of carbon emission trading scheme under different emission permit allocation rules. By the setting of duopoly, we characterize the environmental effectiveness of carbon emission trading scheme, design various emission discrimination policies and then explore connections between the environmental effectiveness and emission discrimination policies. Our main results suggest that not all environmental effectiveness of carbon emission trading schemes are very sensitive to emission discrimination policies. Under grandfathering rule, the emission discrimination policy is not valid to facilitate the environmental effectiveness of carbon emission trading scheme. However under benchmarking rule, the environmental effectiveness of carbon emission trading scheme can be remarkably improved by an appropriate emission discrimination policy. Furthermore, we also compare the actual emissions in carbon emission trading schemes and conclude that the carbon emission trading scheme with benchmarking rule is a better choice for an ‘active’ regulatory authority from the viewpoint of policy efficiency.

Date: 2021
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DOI: 10.1080/1331677X.2020.1861960

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