Article published in Journal of Environmental Economics and Management – Oct 2017.
We study pollution permit markets in which a fraction of permits are allocated to firms based on their output. Output-based allocations, which are receiving increasing attention in the design of carbon markets around the world (e.g., Europe, California, New Zealand), are shown to be optimal under demand and supply volatility despite the output distortions they may create. In a market that covers multiple sectors, the optimal design combines auctioned permits with output-based allocations that are specific to each sector and increasing in its volatility. When firms are better informed about the latter or must self select, the regulator resorts to some free (i.e., lump-sum) allocations to sort firms out.
Adopting disruptive technologies for decarbonizing hard-to-abate industrial sectors requires experimentation through demonstration (pilot) projects. However, from an economic perspective, the potential long-term benefits and the difficulties in designing relevant public policies are not addressed in the standard valuations of those projects.
Ce colloque discutera des quotas carbone individuels en combinant les perspectives du droit, de la philosophie, de l'économie ou des sciences politiques.