Emissions Trading: ERCs or Allowances

Donald Dewees

Working Papers from University of Toronto, Department of Economics

Abstract: There are two principal choices of the baseline from which emissions trading may take place: 1) emission reduction credits (ERCs) in which the baseline is existing regulations which are often activity-based; and 2) cap-and-trade which specified the total allowable emissions. This paper examines the effects of these two tradable permit systems on marginal and average costs for the firm, using electricity generation as an example. The ERC system subsidises the activity level to which it is tied, failing to incorporate the full cost of external harm into the product price. The cap-and-trade system is more efficient.

Keywords: air pollution; emissions trading; allowances; emission reduction credits; cap and trade; electricity generation; externality (search for similar items in EconPapers)
JEL-codes: Q25 Q28 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2000-07-11
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:dewees-00-01

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