Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2002:11: Comparing Permit Allocation Options: The Main Points

Peter Bohm
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Peter Bohm: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: In discussions about the policy design of domestic emission trading, e.g., when implementing the Kyoto Protocol, the two permit allocation alternatives ­ auctioning and allocation gratis (grandfathering) ­ are often pitted against each other as representing utopian cost-effectiveness and political realism, respectively. In this note, an attempt is made to extract the main points of a comparison between the two options with respect to efficiency and distribution.

Keywords: Domestic carbon emissions trading; permit allocation; grandfathering; auctioning; cost effectiveness; Kyoto protocol

JEL-codes: Q25; Q28

7 pages, April 20, 2002

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