RT Journal Article
SR Electronic
T1 Emissions Trading: ERCs or Allowances?
JF Land Economics
JO Land Econ
FD University of Wisconsin Press
SP 513
OP 526
DO 10.2307/3146937
VO 77
IS 4
A1 Dewees, Donald N.
YR 2001
UL http://le.uwpress.org/content/77/4/513.abstract
AB Emissions trading takes place from two alternative baselines: 1) emission reduction credits (ERCs) in which the baseline is existing regulations which are often activity-based; or 2) cap-and-trade which specifies the total allowable emissions. This paper examines the effects of these two tradable permit systems on marginal and average costs for the firm, using electricity generation as an example. The ERC system subsidizes the activity level to which it is tied and fails to incorporate the full cost of external harm into the product price. If the permit limit is chosen efficiently, the cap-and-trade system is more efficient. (JEL Q25, Q28)