The efficiency, equity and politics of emissions permit trading
Wooders, Myrna Holtz and Zissimos, Ben (2001) The efficiency, equity and politics of emissions permit trading. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.586).
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This paper illustrates that an international permit trading system may hurt relatively poor countries by making associated economic activities unaffordable. A model is constructed in which the free market solution is Pareto inefficient as a result of pollution. The introduction of tradable permits allows pollution to be internalised, and brings about an increase in the total social surplus. But when incomes vary, this may not lead to a Pareto improvement; those in poor countries stop the polluting activity because they cannot afford to do otherwise. Only those in relatively rich countries are made better off. This may explain why poor countries are reluctant to ratify the Kyoto Protocol, itself advocating a permit trading scheme. The politico-economic implications of permit trading are also examined. We show that the democratic requirements for ratification impose a lower bound on pollution reduction that can be achieved through a system of pollution permits with trade.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HC Economic History and Conditions|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||United Nations Framework Convention on Climate Change (1992). Protocols, etc., 1997 Dec. 11, Emissions trading, Carbon offsetting, Efficient market theory, Climatic changes -- Government policy|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||March 2001|
|Number of Pages:||27|
|Institution:||University of Warwick|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||John D. and Catherine T. MacArthur Foundation|
 Bagwell, K. and R. Staiger (1999) “An Economic Theory of the GATT,” American Economic Review, 89(1) (March) pp 215-48.
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