On the Strategic Effect of International Permits Trading on Local Pollution

Abstract

We introduce a model of strategic environmental policy where two firms compete a la Cournot in a third market in the presence of multiple pollutants. Two types of pollutants are introduced: a local and a transboundary one. The regulator can only control local pollution as transboundary pollution is regulated internationally. We illustrate that when transboundary pollution is regulated through the use of tradable emission permits instead of non-tradable ones then a new strategic effect appears which has not been identified thus far. In this case, local pollution increases further. We caution that linking permit markets across regions may be welfare detrimental. We also provide evidence from the implementation of EU ETS over the pollution of particulate matters (PM (10) and PM (2.5)).

Keywords

Environmental regulation; Multiple pollutants; (Non) tradable permits; Strategic interactions

Published in

Environmental and Resource Economics
2019, volume: 74, number: 3, pages: 1299-1329

SLU Authors

• Kyriakopoulou, Efthymia

  • Department of Economics, Swedish University of Agricultural Sciences
    

UKÄ Subject classification

Economics

Publication identifier

• DOI: https://doi.org/10.1007/s10640-019-00369-0

Permanent link to this page (URI)

https://res.slu.se/id/publ/104531