Optimal design of a phase-in emissions trading program with voluntary compliance options
Author(s)Montero, Juan Pablo
Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research.
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In this paper we explore the welfare implications of voluntary compliance within an emissions trading program and derive optimal permits allocations to affected and opti-in sources when the environmental regulator has incomplete information on individual unrestricted emissions and control costs. The regulator faces a trade-off between production efficiency (minimization of control costs) and information rent extraction (reduction of excess permits allocated to opt-in sources). The first-best equilibrium can be attained if the regulator can freely allocate permits to affected and opt-in sources; otherwise a second-best equilibrium is implemented. The latter is sensitive to uncertainty in control costs and benefits
MIT Center for Energy and Environmental Policy Research
MIT-CEEPR (Series) ; 97-004WP.