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Canada (161,877)
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EC238 (54)
Karen Huff (33)
Chapter 13

Chapter 13 EC238.docx

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Karen Huff

EC238 Chapter 13 – Transferable Emission Permits Week 7 General Principles -A transferable emission permit creates a transferable property right to emit a specified amount of pollution -Each permit entitles its holder to emit one unit of the waste specified in the right -Right holders would ordinarily have a number of such permits at any point in time -These discharge permits are transferable; they can be bought and sold among anybody allowed to participate in the permit market, at whatever price is agreed upon by participants themselves -A TEP program begins with a specialized decision on the total number of discharge permits to be put into circulation -In actual TEP systems, the total number of permits is set at a target level that may be arbitrary because there is limited knowledge about either the MAC or MD curve -If the total number of permits is less than current total emissions, some or all of emitters will receive fewer permits than their current emissions -Gains from trade would continue to exist and permits would continue to be traded until marginal abatement costs are equalized -The TEP system operates like a hybrid between imposing standards and using taxation to reach a target -As long as marginal abatement costs are unequal among these sources, they can both become better off by trading permits at some price between these marginal abatement costs -When a large number of firms is involved, the TEP system works in the same way, but trading patterns will be more complicated -Key points about a TEP policy: -Like a standard, permits ensure that a target level of pollution is achieved -Like a tax, transferable permits that are traded in a competitive market are a cost-effective policy -Regulators do not have to know each polluter’s MAC curve to find the right “price” that achieves cost-effectiveness -Once the target level of pollution is set, the market will reveal a polluter’s MAC curve -Trading occurs if the MACs of polluters are sufficiently different so that some will become sellers of permits and the others, buyers -The exchange of permits provides each trader with cost savings compared to their initiate permit allocation from the regulator Issues in Setting up a TEP Market -The Initial Rights Allocation: -Each alloc
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