Strategic Behavior and the Environment > Vol 5 > Issue 1

Optimal Regulations and Efficiency Losses in Imperfectly Competitive International Emissions Trading

Tsung-Chen Lee, Department of Economics, National Taipei University, Taiwan, tclee@mail.ntpu.edu.tw Hsiao-Chi Chen, Department of Economics, National Taipei University, Taiwan, hchen@mail.ntpu.edu.tw Shi-Miin Liu, Department of Economics, National Taipei University, Taiwan, shimiin@mail.ntpu.edu.tw
 
Suggested Citation
Tsung-Chen Lee, Hsiao-Chi Chen and Shi-Miin Liu (2015), "Optimal Regulations and Efficiency Losses in Imperfectly Competitive International Emissions Trading", Strategic Behavior and the Environment: Vol. 5: No. 1, pp 61-85. http://dx.doi.org/10.1561/102.00000056

Published: 24 Jun 2015
© 2015 T.-C. Lee, H.-C. Chen and S.-M. Liu
 
Subjects
Environmental Economics:Climate Change
 
Keywords
Q54Q58
International emissions tradingimperfect competitionoptimal regulationsefficiency losses
 

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In this article:
1. Introduction
2. Basic Settings
3. Globally Cost-Effective IET
4. Imperfectly Competitive IET Considering Governments' Regulations
5. Efficiency Implications
6. A Numerical Analysis of the Annex-1 Emissions Trading
7. Conclusions
Appendix
References

Abstract

This paper analyzes governments' optimal regulations and efficiency losses under imperfectly competitive international emissions trading in which price-influencing and price-taking countries move sequentially. It is found that price-taking countries should not intervene in trading of emission permits. As for the price-influencing group, no regulation is optimal when only one country has market power. In contrast, if there are at least two price-influencing countries, it is optimal for them to subsidize their firms' permit purchases or sales. We show that the subsidies could mitigate efficiency losses of countries adopting this policy, given other countries' optimal regulations. Moreover, a numerical example of the Annex-1 emissions trading is conducted to support our theoretical results. The simulation results further show that the number as well as the composition of price-influencing countries would affect total efficiency losses under imperfectly competitive international emissions trading.

DOI:10.1561/102.00000056