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Permit Trading: Merely an Efficiency‐Neutral Redistribution away from Climate‐Change Victims? *
Author(s) -
Godal Odd,
Holtsmark Bjart
Publication year - 2011
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2011.01674.x
Subject(s) - redistribution (election) , subsidy , emissions trading , economics , climate policy , climate change , redistribution of income and wealth , international economics , natural resource economics , monetary economics , market economy , microeconomics , ecology , public good , politics , political science , law , biology
In this paper, we present a climate‐policy game with international emissions trading, where governments first select their amounts of emissions permits. These permits are transferred to firms, and then traded competitively on an international market. Compared with a game without trading, we find that the potential efficiency gains from permit trading, which have been identified in other studies, are totally undone if governments also employ a tax or subsidy on domestic emissions. The only effect of permit trading in this case is a redistribution of income away from those most affected by climate change.