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Appears in Collections:Economics Working Papers
Peer Review Status: Unrefereed
Title: Emissions Trading and Intersectoral Dynamics: Absolute versus Relative Design Schemes
Authors: de, Vries Frans
Dijkstra, Bouwe R
McGinty, Matthew
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Citation: de Vries F, Dijkstra BR & McGinty M (2011) Emissions Trading and Intersectoral Dynamics: Absolute versus Relative Design Schemes. Stirling Economics Discussion Paper, 2011-15.
Keywords: emissions trading
imperfect competition
industrial change
pollution control
sectoral dynamics
JEL Code(s): D62
Issue Date: Jul-2011
Series/Report no.: Stirling Economics Discussion Paper, 2011-15
Abstract: This paper examines the interdependence between imperfect competition and emis- sions trading in a two-sector (clean and dirty) economy. We compare the welfare implica- tions of an absolute cap-and-trade scheme (permit trading) with a relative intensity-based scheme (credit trading). We nd unambiguously more clean rms in the long run under credit trading. However, neither emissions trading con guration creates the rst-best out- come: there are too few (many) clean rms under permit (credit) trading. Permit trading dominates credit trading in terms of overall welfare at the long run equilibrium, except when policy is relatively lenient. It is also demonstrated that stricter policy does not necessarily induce the clean sector to grow relative to the dirty sector and we determine under what conditions this holds.
Type: Working or Discussion Paper
Affiliation: Economics
University of Nottingham
University of Wisconsin-Madison

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