Tradable Permits vs Ecological Dumping

Fabio Antoniou, Panos Hatzipanayotou and Phoebe Koundouri ()

No 50.2010, Environmental Economy and Policy Research Working Papers from University of Cambridge, Department of Land Economics

Abstract: In this paper we examine an alternative policy scenario, where governments allow polluting firms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to underregulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting firms and countries since the prisoners’ dilemma is moderated.

Keywords: Strategic environmental policy; Tradable permits; Race to the top. (search for similar items in EconPapers)
JEL-codes: F12 F18 Q58 (search for similar items in EconPapers)
Date: 2010, Revised 2010
New Economics Papers: this item is included in nep-ene and nep-env
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Related works:
Working Paper: Tradable Permits vs Ecological Dumping (2010)
Working Paper: Tradable Permits vs Ecological Dumping (2010)
Working Paper: Tradable Permits vs Ecological Dumping (2010)
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