Tradable permits and unrealized gains from trade

Abstract

With the advent of tradable permit programs for bad outputs (e.g., SO₂ emissions); concerns arose over whether the theoretical gains from trade would be realized. We will employ a methodology that calculates the potential gains accruing to coal-fired electric power plants from implementing a tradable permit program. The magnitude of the potential gains in a plant's kilowatt hour output from a tradable permit program relative to its observed production provides insights into the existence of intertemporal allocative inefficiencies and spatial allocative inefficiencies after the implementation of a tradable permit program.KEYWORDS: SO₂ emissions, Joint production model, Tradable permitsThis is the publisher’s final pdf. The published article is copyrighted by Elsevier and can be found at: http://www.journals.elsevier.com/energy-economics