The political economy of emissions trading

L'économie politique des marchés de permis d'émission négociables

Abstract: This thesis is a positive analysis of emissions trading systems' implementation. We explain why allowances are generally granted for free even though normative economic analysis recommends their sale. We show empirically that free tradable permits, source of windfall profit, motivate rent seeking behaviours. The study focuses on the US market for SO2 emissions allowances. The initial allocation rule resulted from parliamentary discussions that looked like a zero sum game. We formalize it as an endogenous sharing rule, function of lobbying effort, and we test it using political (money) contributions.We analyse theoretically the behaviour of an influenced regulator that has chosen to organize a market for permits and that must still decide on two policy variables: the whole quantity of permits and the way to allocate them initially. We formalize this decisions making process with the common agency model of politics.We show that the choice of an initial allocation rule is not neutral in presence of political market failures (lobbying). The decision to sell the permits or to grant them for free modifies the shareholders' incentive, in a polluting industry, to pressure for or against the reduction of legal emissions.Then, we analyse the public arbitrage between the two policy variables when several industrial lobbies play a partially cooperative game for the free permits. The regulator chooses in priority to grant the rights for free rather than to manipulate their quantity, and this constitutes an efficient answer to the political influence.

Keywords: Emissions trading; political economy; environmental policy; Marchés de permis; économie politique; lobbying; permis négociables; politique environnementale (search for similar items in EconPapers)
Date: 2004-06-23
Note: View the original document on HAL open archive server: https://theses.hal.science/tel-00006617v2
References: Add references at CitEc
Citations:

Published in Economies et finances. Institut d'études politiques de paris - Sciences Po, 2004. Français. ⟨NNT : ⟩

Downloads: (external link)
https://theses.hal.science/tel-00006617v2/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:tel-00006617

Access Statistics for this paper

More papers in SciencePo Working papers Main from HAL
Bibliographic data for series maintained by Contact - Sciences Po Departement of Economics ().