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Trade of Permits for Greenhouse Gas Emissions: Bilateral Trade Need not be the Answer

Environmental and Resource Economics volume 46, pages 495–509 (2010)Cite this article

Abstract

The Kyoto Protocol sets national quotas on GHG emissions and allows international trade of these quotas. Taking terms-of-trade effects into account, we argue that this trade is characterized by asymmetric, identity-dependent externalities, and show that bilateral trade of permits may not be sufficient for an efficient allocation of emissions. We derive conditions under which bilateral trade does improve the allocation of permits. The conditions are strong. In this sense, we argue that, for emissions permits, market design matters.

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Authors and Affiliations

  1. Institute for Economic Analysis (CSIC), Campus UAB, 08193, Bellaterra, Barcelona, Spain

    Roberto Burguet

  2. El Colegio de México, Camino al Ajusco 20, Pedregal de Santa Teresa, 10740, México, D.F., Mexico

    Jaume Sempere

Authors
  1. Roberto Burguet
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  2. Jaume Sempere
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Correspondence to Roberto Burguet.

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Burguet, R., Sempere, J. Trade of Permits for Greenhouse Gas Emissions: Bilateral Trade Need not be the Answer. Environ Resource Econ 46, 495–509 (2010). https://doi.org/10.1007/s10640-010-9351-z

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  • DOI: https://doi.org/10.1007/s10640-010-9351-z

Keywords

  • Terms-of-trade
  • Asymmetric externalities
  • Permits trade

JEL Classification

  • D62
  • F18