Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience

By Jody Freeman; Charles D. Kolstad | Go to book overview
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4
Tradable Permits in Principle and Practice

Tom Tietenberg


INTRODUCTION

Background

One of most prominent approaches for coping with the problem of rationing access to the commons involves the use of tradable permits. Applications of this approach have spread to many different types of resources and many different countries. A recent survey found nine applications in air pollution control, seventy-five applications in fisheries, three applications in managing water resources, five applications in controlling water pollution, and five applications in land use control (OECD 1999, Appendix 1, pp. 18–19). And that survey failed to include many current applications, including those that have sprung up in response to the Kyoto Protocol.

The Kyoto Protocol authorizes three cooperative implementation mechanisms that involve tradable permits: emission trading, joint implementation, and the Clean Development Mechanism. These programs have, in turn, spawned others. The European Parliament passed a bill capping European industry's carbon dioxide output and letting firms trade the allowed emissions. Beginning in January 2005, many plants in the oil refining, smelting, steel, cement, ceramics, glass, and paper sectors need special permits to emit carbon dioxide (CO2). Individual countries such as the United Kingdom (Hartridge 2003) and Denmark (Pederson 2003) have created their own national trading programs. Individual companies are even involved. BP, an energy company, has established company-wide goals and a trading program to help individual units to meet those goals. Despite the fact that the

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