Working Paper: CEPR ID: DP7035
Authors: Hans Gersbach; Ralph Winkler
Abstract: We propose a blueprint for an international emission permit market such as the EU trading scheme. Each country decides on the amount of permits it wants to offer. A fraction of these permits is grandfathered, the remainder is auctioned. Revenues from the auction are collected in a global fund and reimbursed to member countries in fixed proportions. We show that international permit markets with refunding lead to outcomes in which all countries tighten the issuance of permits and are better off compared to standard international permit markets. If the share of grandfathered permits is sufficiently small, we obtain approximately socially optimal emission reductions.
Keywords: climate change; mitigation; global refunding scheme; international agreements; international permit markets; tradeable permits
JEL Codes: H23; H41; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| issuance of permits (R48) | auctioning of permits (D44) |
| auctioning of permits (D44) | environmental outcomes (Q56) |
| issuance of permits (R48) | environmental outcomes (Q56) |
| share of grandfathered permits (Q31) | equilibrium under refunding scheme (D53) |
| structure of permit system (R48) | efficiency of emission reductions (D61) |
| international emission permit market with refunding (Q58) | Pareto improvement (D61) |