Woodward, Richard T (2010): Double Dipping in Environmental Markets.
Download (354kB) | Preview
There is an increasing tendency to use markets to induce the provision of environmental services. As such markets increase in scope, potential market participants might sell multiple environmental services. The question we consider here is whether participants in such markets should be allowed to sell credits in more than one market simultaneously. Some have argued in favor of such “double dipping,” because it would make the provision of environmental services more profitable. In practice, however, most programs do not allow doubledipping. We show that if the optimal level of pollution abatement is sought, then double-dipping maximizes societal net benefits. However, if pollution policies are set in a piecemeal fashion, then the caps for each market are unlikely to be optimal and, in this second-best setting, a policy prohibiting double dipping can lead to greater social net benefits. We explore conditions under which a singlemarket policy is preferred, or equivalently, where piecemeal policies are likely to yield particularly inefficient outcomes.
|Item Type:||MPRA Paper|
|Original Title:||Double Dipping in Environmental Markets|
|Keywords:||Environmental policy; tradable discharge permits; numerical methods; stacking|
|Subjects:||H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods
Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General
Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy
|Depositing User:||Richard Woodward|
|Date Deposited:||27. Oct 2010 21:14|
|Last Modified:||30. Dec 2015 17:15|
Atkinson, Scott and Tietenberg, Tom. 1991. Market Failure in Incentive-Based Regulation: The Case of Emissions Trading. Journal of Environmental Economics and Management 21(1):17-31.
Baumol, William J. and Wallace E. Oates. 1988l The theory of environmental policy, 2nd edition. New York: Cambridge University Press.
Beavis, Brian, and Martin Walker. 1979. Interactive Pollutants and Joint Abatement Costs: Achieving Water Quality Standards with Effluent Charges. Journal of Environmental Economics and Management 6(4):275-86.
Berry, David. 2002. The Market for Tradable Renewable Energy Credits. Ecological Economics 42(3):369-79.
Caplan, Arthur J. 2006. A Comparison of Emission Taxes and Permit Markets for Controlling Correlated Externalities. Environmental and Resource Economics 34(4):471-92.
Caplan, Arthur J. and Silva, Emilson C.D. 2005. An Efficient Mechanism to Control Correlated Externalities: Redistributive transfers and the coexistence of regional and global pollution permit markets. Journal of Environmental Economics and Management 49:68-82
Crocker, T. D. 1966. The Structuring of atmospheric pollution control systems. The economics of air pollution. H. Wolozin. New York, W.W. Norton & Co.: 61-86.
Dales, J. H. 1968b. Land, Water, and Ownership. The Canadian Journal of Economics, 1(4):791-804.
Dales, J.H. 1968a. Pollution, property and prices. Toronto: University of Toronto Press.
Davis, Adam. 2006. What's Sauce for the Goose. Katoomba Group’s Ecosystem Marketplace. http://ecosystemmarketplace.com: June 15, 2006.
Dewees, Donald N. 2001. Emissions Trading: ERCs or Allowances? Land Economics 77(4):513-26.
Greenhalgh, Suzie. 2008. Bundled Ecosystem Markets – Are They The Future? Presented Paper at 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida.
Haddad, Brent M. 1997. Putting Markets to Work: The Design and Use of Marketable Permits and Obligations. Paris: Organization for Economic Co-operation and Development, Occasional Paper #19.
Helfand, Gloria E. 1991. Standards versus Standards: The Effects of Different Pollution Restrictions. American Economic Review 81(3):622-34.
Horan, Richard D., Shortle, James S., and Abler, David G. 2004. The Coordination and Design of Point-Nonpoint Trading Programs and Agri-Environmental Policies. Agricultural and Resource Economics Review 33(1):61-78.
Kieser & Associates. 2003. Ecosystem Multiple Markets: Executive Summary. http://www.envtn.org/docs/emm_es.PDF: February 13, 2003,
Kruger, Joseph, Oates, Wallace E., and Pizer, William A. 2007. The European Union Emissions Trading Scheme: Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy. Review of Environmental Economics and Policy 1(1):112-33.
Lewis, Tracy R. 1996. Protecting the Environment When Costs and Benefits Are Privately Known. RAND Journal of Economics 27(4):819-47.
McConnell, Virginia, Kopits, Elizabeth, and Walls, Margaret. 2006. Using Markets for Land Preservation: Results of a TDR Program. Journal of Environmental Planning and Management 49(5):631-51.
Michaelis, Peter. 1992. Global Warming: Efficient Policies in the Case of Multiple Pollutants. Environmental and Resource Economics 2(1):61-77.
Montero, Juan-Pablo. 2000. Optimal Design of a Phase-In Emissions Trading Program. Journal of Public Economics 75(2):273-91.
Montero, Juan-Pablo. 2001. Multipollutant Markets. RAND Journal of Economics 32(4):762-74.
Montgomery, W David. 1972. Markets in Licenses and Efficient Pollution Control Programs. Journal of Economic Theory 5(3):395-418.
Shabman, Leonard and Paul Scodari. 2005. The Future of Wetlands Mitigation Banking. Choices 20(1):65-70.
Stavins, Robert N. 1995. Transaction Costs and Tradable Permits. Journal of Environmental Economics and Management 29(2):133-48.
U.S. Environmental Protection Agency (USEPA). 2004. Final Water Quality Trading Policy. Office of Water. Retrieved Oct 27, 2004 from: http://www.epa.gov/owow/watershed/trading/finalpolicy2003.html
U.S. Environmental Protection Agency (USEPA). 2007. List of all trading programs. Office of Water. Retrieved December 12, 2007 from: http://www.epa.gov/owow/watershed/trading/tradingprograminfo.xls
von Hagen, Bettina. 2006. I'll Have Mine Double-Dipped. Katoomba Group’s Ecosystem Marketplace http://ecosystemmarketplace.com: June 19, 2006.
von Ungern-Sternberg, Thomas. 1987. Environmental Protection with Several Pollutants: On the Division of Labor between Natural Scientists and Economists. Journal of Institutional and Theoretical Economics 143(4):555-67.
Weitzman, Martin L. 1974. Prices vs. Quantities. Review of Economic Studies 41(4):477-91.
Woodward, Richard T., Kaiser, Ronald A., and Wicks, Aaron-Marie B. 2002. The Structure and Practice of Water Quality Trading Markets. Journal of the American Water Resources Association 38 (4):967-979.
Wunder, Sven. 2005. Payments for Environmental Services: Some Nuts and Bolts. CIFOR Occasional Paper No.42. CIFOR: Jakarta