The Race for Polluting Permits

27 Pages Posted: 22 May 2008

See all articles by Thierry Bréchet

Thierry Bréchet

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Susana Peralta

CORE-UCL; Nova School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

Abstract

International markets for tradable emission permits (TEP) co-exist with national energy taxation. A firm trading emission permits in the international market also pays energy taxes in its host country, thus creating an interaction between the international TEP-market and national energy taxes. In this paper we model that interaction in a framework of a perfectly competitive international TEP-market, where heterogeneous firms trade their TEP endowments. National governments set energy taxes non-cooperatively so as to maximize fiscal revenue from energy and profit taxes. We identify the driving forces behind Nash equilibrium taxes. We show how they depend on the total amount of TEPs in the market, on firms' TEP-endowment and on the number of participating countries. We also show how energy taxation varies with the introduction of the market on a previously unregulated world. Finally, we highlight the fact that the TEP-market does not achieve abatement cost efficiency, despite its being perfectly competitive.

Keywords: Fiscal competition, Kyoto protocol, tradable permits

JEL Classification: H23, H73, Q48, Q52

Suggested Citation

Brechet, Thierry and Peralta, Susana and Peralta, Susana, The Race for Polluting Permits (March 2007). CEPR Discussion Paper No. DP6209, Available at SSRN: https://ssrn.com/abstract=1135451

Thierry Brechet (Contact Author)

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Susana Peralta

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

HOME PAGE: http://docentes.fe.unl.pt/~peralta/

CORE-UCL

34 Voie du Roman Pays
1348 Louvain-la-Neuve, 1348
Belgium

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