Enforcement and Environmental Quality in a Decentralized Emission Trading System

Alessio D'Amato () and Edilio Valentini

No 46654, Climate Change Modelling and Policy Working Papers from Fondazione Eni Enrico Mattei (FEEM)

Abstract: This paper addresses the issue of whether the powers of monitoring compliance and allocating tradeable emissions allowances within a federation of countries should be appointed to a unique federal regulator or decentralized to several local regulators. To this end, we develop a two stage game played by environmental regulator(s) and the polluting industries of two countries. Regulator(s) choose the amount of emission allowances to be issued and set the level of monitoring effort to achieve full compliance, while regulated firms choose actual emissions and the number of permits to be held. We identify various, possibly conflicting, spillovers among states in a decentralized setting. We show that cost advantage in favor of local regulators is not sufficient to justify decentralization. Nevertheless, cost differential in monitoring violations can imply lower emissions and greater welfare under a decentralized institutional setting than under a centralized one. However, while a better environmental quality under decentralization is a sufficient condition for higher welfare under the same regime, it is not also a necessary condition.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 24
Date: 2008-12
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https://ageconsearch.umn.edu/record/46654/files/97-08.pdf (application/pdf)

Related works:
Journal Article: Enforcement and environmental quality in a decentralized emission trading system (2011)
Working Paper: Enforcement and Environmental Quality in a Decentralized Emission Trading System (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemcc:46654

DOI: 10.22004/ag.econ.46654

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