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Monitoring Abatement in the Presence of an Import Quota on CERs

Sabine Aresin

No tax-mpg-rps-2015-11, Working Papers from Max Planck Institute for Tax Law and Public Finance

Abstract: I analyze whether or not a monitoring problem regarding abroad abatement can justify the import quotas on abroad emission certiï¬ cates applied by several emission trading schemes. For this purpose I extend the Becker (1968) Crime and Punishment model by heterogeneity in the observability of compliance. I do so by incorporating a ï¬ rm’s cost minimizing choice of domestic and abroad CO2 abatement into a monitoring framework in which ï¬ rms have to meet an exogenously set emission standard. I ï¬ nd that the government can implement the ï¬ rst best abatement allocation under incomplete information, however, under incomplete information this allocation is not socially optimal. Instead, the government should in the presence of a monitoring problem introduce an import quota for abroad abatement that shifts the allocation from abroad to domestic abatement.

Keywords: Clean Development Mechanism; Import Quota on Certiï¬ ed Emission Reductions; Import Restrictions; Green House Gas Offset; Abatement; Monitoring; Incomplete Information; Information Asymmetry (search for similar items in EconPapers)
JEL-codes: D21 D82 F53 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-env
Date: 2015-11
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