Pollution Permits in Oligopolies: The role of abatement technologies

Clémence Christin (1) , Jean-Philippe Nicolaï (2) , Jérôme Pouyet (3, 4)

1 CREM - Centre de recherche en économie et management
2 EconomiX - EconomiX
3 THEMA - Théorie économique, modélisation et applications
4 ESSEC Business School

This paper examines, under imperfect competition, the effect of a cap-and-trade system on industry profits and the interaction between cap-and-trade system and the evolution of the market structure, both depending on the type of abatement technologies used by firms. Two extreme types are considered: end-of-pipe abatement technology-meaning, filtration and other mechanisms that are largely independent of production decisionsand process-integrated technology, which entails integrating cleaner or more energy-efficient methods into production. This paper prescribes that the distribution of free allocation should depend on the kind of abatement technologies. Finally, a reserve of pollution permits for new entrants is justified when the industry uses a process-integrated abatement technology, while a system with a preemption right may be justified in the case of end-of-pipe abatement technology.

Mots clés: cap-and-trade system; imperfect competition; end-of-pipe abatement; process-integrated abatement; reserve for entrants

Domaines: Économie et finance quantitative [q-fin]

Clémence Christin, Jean-Philippe Nicolaï, Jérôme Pouyet. Pollution Permits in Oligopolies: The role of abatement technologies. 2021. ⟨hal-03328947⟩