Three essays on international carbon dioxide emissions trading
Description
Essay 1. We propose an international policy structure that provides incentives for participants of a global market for pollution permits to behave efficiently. Market participants are affected by production or consumption externalities. The efficiency properties of the international market depend upon the type of externality, production or consumption, and on the timing of policymaking. If centralized income redistribution takes place before decentralized environmental policymaking and emissions affect production only, market behavior is unaffected by income transfers. However, it depends on income transfers if emissions affect consumption directly. Market behavior is efficient despite the externality type when income redistribution occurs after environmental policymaking Essay 2. An international mechanism intended to curb global carbon dioxide emissions, mirrored after the Kyoto Protocol, is composed of decentralized regulatory and enforcement authorities and two supranational agencies that are in charge of promoting international transfers and imposing punitive fines. Regulatory enforcement is costly and imperfect. Polluting firms located in various sovereign nations may not comply with emission regulations. We show that there is a combination of decentralized emission quotas and centralized income transfers and fines, with decentralized leadership in policy making, which induces regional regulatory authorities to internalize all environmental and pecuniary externalities Essay 3. We examine the pollution haven hypothesis for dirty goods generating simultaneously global and local pollutants. Under domestic emissions trading for both pollutants, richer countries have higher prices of both types of emission permits. Trade will cause the polluting industry to shift the poorer countries. This pollution haven effect may be weakened if the emission permits for the global pollutant are traded internationally. Redistributive income transfers across countries may further reduce and even reverse the pollution haven effect. Emission cutbacks of the global pollutant by other countries will lead the home country to increase the emission of the global pollutant while reducing the emission of the local pollutant