Reduced Allowability and the Allocation of Emission Abatement

Sabine Aresin

Working Papers from Max Planck Institute for Tax Law and Public Finance

Abstract: Introducing discounts on Certiï¬ ed Emission Reductions from the Clean Development Mechanism is often treated as if it only imposed a substitution effect on a ï¬ rm’s decision between domestic and abroad abatement. Applying a cost minimization approach with a representative ï¬ rm, I can show that reduced allowability generates a quantity effect in addition to the substitution effect. This quantity effect counteracts the substitution effect for abroad abatement. It may even cause abroad abatement to increase as a result of reduced allowability for Certiï¬ ed Emission Reductions. The results are robust to introducing a secondary market for emission credits, given endogenous prices.

Keywords: Clean Development Mechanism; Import restrictions; Allowability; Green House Gas offset; Abatement (search for similar items in EconPapers)
JEL-codes: D21 F53 Q58 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2015-11
New Economics Papers: this item is included in nep-ene and nep-env
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