Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 610: On The Strategic Effect of International Permits Trading on Local Pollution: The Case of Multiple Pollutants
Fabio Antoniou () and Efthymia Kyriakopoulou ()
Additional contact information
Fabio Antoniou: Institut für Wirtschaftstheorie I, Humboldt-Univeristät zu Berlin, Postal: Spandauer Str. 1, 10099, Berlin, Germany
Efthymia Kyriakopoulou: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 Gothenburg, Sweden
Abstract: We introduce a model of strategic environmental policy where two firms compete à la Cournot in a third market under 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. The strategic effect present in the original literature is also replicated in this setup. However, 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 had not been identified thus far. In this case, local pollution increases further and welfare is lowered. We also provide evidence from the implementation of EU ETS over the pollution of PM10 and PM2.5.
Keywords: Environmental regulation; multiple pollutants; (non) tradable permits; strategic interactions
31 pages, February 2015
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