6. Leave It to the Market

Economic rationalism involves the intelligent deployment of market instruments to achieve public ends such as environmental protection and resource conservation. The instruments in question can involve the establishment of private property rights in land, air, and water; “cap and trade” markets in pollution rights (emissions trading); tradeable quotes in resources such as fish; green taxes, such as a carbon tax; and the purchase of offsets to compensate for environmentally damaging behavior. These instruments have been adopted in many countries, though with some resistance from those who believe there is more to life than economic reasoning.

Szennyezési jogok hatása a vállalati termelési stratégiára = Effect of pollution rights on production strategy of firm

A cikk a szennyezési jogok bevezetését vizsgálja a mikroökonómia standard vállalatára. A komparatív statika módszerével vizsgáljuk a termelő vállalat lehetséges reakcióit a szennyezési jog bevezetésére. A vállalatok stratégiája a szennyezési jog bevezetésére a technológia változatlanul hagyása, vagy megváltoztatása lehet. Az egyes esetekben arra keresünk választ, hogy hogyan változik a vállalat nyeresége a bevezetés előtti állapothoz képest, és ez milyen szennyezési stratégiával jár. Szennyezési jogot elad-e, vagy vesz a vállalat a szennyezési jogok piacán? = The paper deals with the effect of an introduction of tradable permits on the production strategy of a firm. It is assumed that the firm will maximize its profit. After introducing the emission trading the profit function will contain the linear emission procurement/selling costs. We will compare the optimal production strategy before tradable permits and after that. The mathematical investigation is based on the nonlinear mathematical programming.

The Integrated Effect of Carbon Emissions Trading and Pollution Rights Trading for Power Enterprises—A Case Study of Chongqing

To control growing environmental problems, the pollution rights trading (PRT) center was established in Jiaxing in 2007, and China officially joined the carbon emission reduction market (NCET) in 2011. Since power enterprises are the main participants in the NCET market and PRT market, the integrated effect of the NCET market and PRT market on power enterprise profit and the regional environment is one of the major issues that needs to be taken into consideration. Based on system dynamics (SD) theory, we propose an NCET-PRT simulation model for power enterprises in Chongqing. Through analyzing parameters of carbon trading price, free ratio, and emission trading prices, 12 different simulation scenarios are configured for sensitivity analysis. Based on the simulation results, the following observations can be obtained: (1) NCET and PRT can effectively promote the performance of enterprises’ carbon emissions reduction and regional pollutant emission reduction but will have a minor negative impact on the industrial economy at the same time; (2) The trading mechanism is interactive; if the carbon emissions trading (NCET) mechanism is implemented separately, the emission of pollutants will be reduced significantly. However, the implementation of pollution rights trading (PRT) alone cannot significantly reduce CO2 emissions; (3) At an appropriate level, NCET and PRT can be enhanced to achieve a maximum emissions reduction effect at a minimum economic cost.

Designing combinatorial exchanges for the reallocation of resource rights

We describe the design and implementation of a combinatorial exchange for trading catch shares in New South Wales, Australia. The exchange ended a decades-long political debate by providing a market-based response to a major policy problem faced by fisheries worldwide: the reallocation of catch shares in cap-and-trade programs designed to prevent overfishing. The exchange was conducted over the Internet to lower participation costs and allowed for all-or-nothing orders to avoid fragmented share portfolios. A subsidy was distributed endogenously to facilitate the transfer of shares from inactive to active fishers. Finally, prices were linear and anonymous to ensure that sellers of identical packages received the same payments. These features were crucial to mitigate economic distortions from introducing catch shares and to gain broad acceptance of the program. However, they led to computationally challenging allocation and pricing problems. The exchange operated from May to July 2017 and effectively reallocated shares from inactive fishers to those who needed them most: 86% of active fishers’ bids were matched and their share deficits were reduced by 95% in high-priority share classes. Similar reallocation problems arise in fisheries with catch-share systems worldwide as well as in other cap-and-trade systems for resource rights, e.g., water and pollution rights. The implemented exchange illustrates how computational optimization and market design can provide policy tools, able to solve complex policy problems considered intractable only a few years ago.