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Publication
Do emission permits markets' original advantages still hold?
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Advisor(s)
Abstract(s)
Emission permits markets have been implemented all over the world but in very different
conditions than those assumed in the original models developed by Dales (1968) or
Montgomery (1972). This paper summarizes the assumptions that are violated when
implementing this policy instrument. Reviewing the most significant literature in the area, we
analyse the consequences of these violations for the outcome of emission permits markets,
and derive conclusions about whether the traditional advantages associated with this
instrument still hold. The major solutions that have been suggested for the identified market
failures are also described. We find that despite the conflicting results reported in the
literature, there are some conclusions unanimously accepted. Importantly, we find that the
characteristics of market institutions are significant determinants of the outcome of these
markets, which means that these aspects may no longer be treated as a mere detail as within
the neoclassical approach. In addition, we find that these characteristics have important
impacts on many other “market failures” identified in this paper. Since these aspects were not
included in the original models, their predictions differ from the results effectively achieved
with the implementation of an emissions permit market.
Description
Comunicação apresentada no World Congress of Environmental and Resource Economists, 3rd Edition, Kyoto, Japan, 2006