Tradeable Carbon Permit Auctions: How and Why to Auction Not Grandfather

Peter Cramton and Suzi Kerr

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: An auction of carbon permits is the best way to achieve carbon caps set by international negotiation to limit global climate change. To minimize administrative costs, permits would be required at the level of oil refineries, natural gas pipe lines, liquid sellers, and coal processing plants. To maximize liquidity in secondary markets, permits would be fully tradable and bankable. The government would conduct quarterly auctions. A standard ascending-clock auction in which price is gradually raised until there is no excess demand would provide reliable price discovery. An auction is preferred to grandfathering (giving polluters permits in proportion to past pollution), because it allows reduced tax distortions, provides more flexibility in distribution of costs, provides greater incentives for innovation, and reduces the need for politically contentious arguments over the allocation of rents.

Keywords: Auctions; Carbon Auctions; Pollution (search for similar items in EconPapers)
JEL-codes: D44 H21 H23 L71 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2002-05-06, Revised 2002-05-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (204)

Published in Energy Policy, 30, 333-345, 2002.

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Related works:
Journal Article: Tradeable carbon permit auctions: How and why to auction not grandfather (2002)
Working Paper: Tradable Carbon Permit Auctions: How and Why to Auction Not Grandfather (1998)
Working Paper: Tradeable Carbon Permit Auctions: How and Why to Auction, Not Grandfather (1998)
Working Paper: Tradable Carbon Permit Auctions: How and Why to Auction Not Grandfather (1998)
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