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Climatic Change

, Volume 86, Issue 1–2, pp 33–49 | Cite as

Output and abatement effects of allocation readjustment in permit trade

  • Thomas Sterner
  • Adrian MullerEmail author
Article

Abstract

In permit trading systems, free initial allocation is common practice. A recent example is the European Union Greenhouse Gas Emission Trading Scheme (EU-ETS). We investigate effects of different free allocation schemes on incentives and identify significant perverse effects on abatement and output employing a simple multi-period model. Firms have incentives for strategic action if allocation in one period depends on their actions in previous ones and thus can be influenced by them. These findings play a major role where trading schemes become increasingly popular as environmental or resource use policy instruments. This is of particular relevance in the EU-ETS where the current period is a trial-period before the first commitment period of the Kyoto protocol. Finally, this paper fills a gap in the literature by establishing a consistent terminology for initial allocation.

Keywords

Allocation Scheme Trading Scheme Permit Price Initial Allocation Commitment Period 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media B.V. 2007

Authors and Affiliations

  1. 1.Environmental Economics Unit (EEU), Department of EconomicsGöteborg UniversityGöteborgSweden
  2. 2.University Fellow, Resources for the Future (RFF)WashingtonUSA
  3. 3.Center for Corporate Responsibility and Sustainability (CCRS)University of ZürichZürichSwitzerland

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