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Enforcing Emissions Trading when Emissions Permits are Bankable

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Abstract

We propose enforcement strategies for emissions trading programs with bankable emissions permits that guarantee complete compliance with minimal enforcement costs. Our strategies emphasize imperfect monitoring supported by a high unit penalty for reporting violations, and tying this penalty directly to equilibrium permit prices. This approach is quite different from several existing enforcement strategies that emphasize high unit penalties for emissions in excess of permit holdings. Our analysis suggests that a high penalty for excess emissions cannot be used to conserve monitoring effort, and that it may actually increase the amount of monitoring necessary to maintain compliance.

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Authors and Affiliations

  1. Department of Resource Economics, University of Massachusetts-Amherst, 214 Stockbridge Hall Amherst, MA, 01003, USA

    John K. Stranlund

  2. Donald Bren School of Environmental Science and Management, University of California, Donald Bren Hall 4410, Santa Barbara, CA, 93106-5131, USA

    Christopher Costello

  3. Departamento de Economía, Universidad de Concepción, Concepción, 1987, Casilla, Chile

    Carlos A. Chávez

Authors
  1. John K. Stranlund
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  2. Christopher Costello
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  3. Carlos A. Chávez
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Corresponding author

Correspondence to John K. Stranlund.

Additional information

The authors are grateful to Anthony Heyes and three anonymous referees for their valuable comments. Partial support for this research was provided by the Cooperative State Research Extension, Education Service, U. S. Department of Agriculture, Massachusetts Agricultural Experiment Station under Project No. MAS00871.

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Stranlund, J.K., Costello, C. & Chávez, C.A. Enforcing Emissions Trading when Emissions Permits are Bankable. J Regul Econ 28, 181–204 (2005). https://doi.org/10.1007/s11149-005-3108-6

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  • DOI: https://doi.org/10.1007/s11149-005-3108-6

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