Output-based allocations in pollution markets with uncertainty and self-selection

Juan-Pablo Montero, Guy Meunier and Jean-Pierre Ponssard

No 476, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: We study pollution permit markets in which a fraction of permits are allocated to firms based on their output. Output-based allocations, which are receiving increasing attention in the design of carbon markets around the world (e.g., Europe, California, New Zealand), are shown to be optimal under demand and supply volatility despite the output distortions they may create. In a market that covers multiple sectors, the optimal design combines auctioned permits with output-based allocations that are specific to each sector and increasing in its volatility. When firms are better informed about the latter or must self select, the regulator resort to some free (i.e., lump-sum) allocations to sort firms out.

JEL-codes: D24 H23 L13 L74 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-env, nep-reg and nep-res
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Output-based allocations in pollution markets with uncertainty and self-selection (2018)
Working Paper: Output-based allocations in pollution markets with uncertainty and self-selection (2017)
Working Paper: Output-based allocations in pollution markets with uncertainty and self-selection (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:476

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