Journal
JOURNAL OF ENVIRONMENTAL ECONOMICS AND MANAGEMENT
Volume 40, Issue 2, Pages 111-136Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1006/jeem.1999.1112
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What are the effects of different ways of allocating CO, emissions permits under a tradable permit scheme? Numerical simulations show that using the permit revenue to lower existing taxes implies by far the lowest welfare cost but also a large reduction in employment in energy-intensive sectors and substantial stranded costs. Grandfathering the permits compensates owners for losses on stranded investments but comes at a welfare cost and does not mitigate the adjustment imposed on the economy. Finally, distributing the permits according to market shares reduces the degree of sectoral adjustment but also comes at a high welfare cost. (C) 2000 Academic Press.
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