Marketable Permits

2025
Book

Author: Tomasz Żylicz
Book Series: SpringerBriefs in Economics
Publisher: Springer Nature Switzerland
Part of: Springer Professional "Business + Economics & Engineering + Technology"; Springer Professional "Engineering + Technology"; Springer Professional "Business + Economics"

About this book

This Brief explores the theory, implementation, and policy implications of marketable permits as environmental policy instruments. Chapters cover a wide range of applications—from pollution control and fisheries management to land use and climate change mitigation. The text refers to “classic” implementations of marketable permits, including both early American experiments and the mature European carbon market, demonstrating that some systems are more successful than others. It also refers to less known initiatives—such as Polish attempts to introduce the instrument—to give readers a more comprehensive view of environmental policy problems. Addressing both the theoretical foundations and policy relevance of marketable permits, this Brief will be a valuable resource for students and scholars of environmental and resource economics and environmental policy.

Frontmatter

1. Introduction

Abstract

Marketable permits—also called tradable permits or transferable permits—differ from non-marketable ones in that they need not necessarily be used strictly for the purpose that they were granted; some scholars refer to ‘tradable entitlement systems’. If a firm does not use them fully, the unused part can be stored for the future or used by another firm. And vice versa: if a firm wishes to do more than its permit allows, the missing part can be purchased. Transfers may involve different entities. Some systems also allow transactions within a single firm; the unused permits can be used by the same firm in the future. Alternatively, a firm can deprive itself of a future use by using the permit earlier than it was originally granted for.

Tomasz Żylicz

2. Theoretical Foundations

Abstract

In 1959–1972 economists laid down the theoretical foundations for applying marketable permits. These are sometimes seen as corollaries of the Coase Theorem. The theorem states that when two agents that impose an external effect on each other can negotiate its allocation in a costless way, they can agree on its socially justified quantity. However, it seems that the idea of permit marketability emerged before Coase (who was honoured with the Nobel prize in 1991) formally stated his theorem.

Tomasz Żylicz

3. Early US Implementations

Abstract

The idea of marketable permits was conceived in the United States, and this is where they were first implemented. Textbooks (e.g. (Stavins 2003)) indicate three historic projects: (1) offset policy; (2) bubble policy; and (3) phasing out lead additives to gasoline. Combined, they allowed to save USD 5–12 billion on US environmental policy (Hahn and Hester 1989). The fourth early implementation, namely the Fox River cleanup in Wisconsin—perhaps because of its local scale—is not mentioned frequently. The following sections contain brief outlines of these implementations. The last section deals with intertemporal transactions called banking.

Tomasz Żylicz

4. Methods of Initial Allocation

Abstract

Marketable permits can be bought and sold. Nevertheless, all transactions depend on what firms own, i.e. on the initial allocation of permits. There are two fundamental methods of this allocation: (1) grandfathering; and (2) auctioning. These will be analysed in what follows.

Tomasz Żylicz

5. Main Types of Marketable Permit Systems

Abstract

Textbooks distinguish two major types of marketable permit systems: (1) absolute limit; and (2) credit systems. The first one is often called cap and trade. Permit trading is common for both of them. Apart from this, they are very different. In what follows the two systems will be characterised.

Tomasz Żylicz

6. The Grand Policy Experiment

Abstract

In 1985 the American delegation to the conference of signatories of the Long Range Transboundary Air Pollution (LRTAP) convention refused to sign the so-called ‘30-Percent Protocol’ which required countries to abate 30% of their sulphur dioxide emission. Environmentalists were upset but it soon became clear that the US government was planning an important programme to reduce emission anyway.

Tomasz Żylicz

7. The European Trading System

Abstract

The acronym ‘ETS’ has two interpretations. The first two letters always denote ‘Emission Trading’. The last one, however, stands for ‘System’ or ‘Scheme’. The acronym is in frequent use. The ETS sector refers to plants covered by the system of carbon dioxide emission trading, and the non-ETS sector refers to all other emission sources. It is estimated that the ETS sector is responsible for 50% of European emission. Other sources—e.g. cars—do not have to acquire permits; they need to comply with other requirements. The ETS started to function in the twenty-first century, but its beginning can be traced to the twentieth century.

Tomasz Żylicz

8. Polish Attempts to Introduce Marketable Permits

Abstract

The collapse of the central planning system in 1989 allowed a new approach to environmental protection and led to the elaboration of a new environmental policy.

Tomasz Żylicz

9. Air Protection Policy in California

Abstract

Having discussed the Polish experiments in the previous chapter, we turn our attention to California not only because of its size (it is one of the largest economies in the world), but also because of the fact that its environmental policies are likely to be replicated elsewhere. Moreover, the state has applied marketable permits in areas where this instrument had not been tested before.

Tomasz Żylicz

10. Other Applications of Marketable Permits

Abstract

Marketable permits are not confined to pollution abatement. They have been applied in many other areas of environmental protection.

Tomasz Żylicz

11. Postscript

Abstract

Since the publication of Martin Weitzman’s famous paper (1974) which compared price- and quantity-based instruments, economists have been deliberating when marketable permits (a quantity instrument) are better than Pigouvian taxes (a price instrument). Theoretically, these are equivalent. However, Weitzman noted that this equivalence is true in a world of perfect information only: in a world where all agents are perfectly informed about anything they do. There is no such comfort in environmental protection policy. When deciding on a cap or on a Pigouvian tax rate, authorities can err and miscalculate the costs and benefits affecting the interested parties, i.e. firms and their neighbourhoods.

Tomasz Żylicz

Title: Marketable Permits
Author: Tomasz Żylicz
Publisher: Springer Nature Switzerland
Electronic ISBN: 978-3-032-12133-2
Print ISBN: 978-3-032-12132-5
DOI: https://doi.org/10.1007/978-3-032-12133-2

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Marketable Permits

About this book

Table of Contents

Frontmatter

1. Introduction

2. Theoretical Foundations

3. Early US Implementations

4. Methods of Initial Allocation

5. Main Types of Marketable Permit Systems

6. The Grand Policy Experiment

7. The European Trading System

8. Polish Attempts to Introduce Marketable Permits

9. Air Protection Policy in California

10. Other Applications of Marketable Permits

11. Postscript

Backmatter

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