Tradeable permits for global warming control: Implications for regional economies and public utilities

In this paper, the authors investigate a cumulative emission permit system (CEPS), both within a theoretical and empirical framework, to explore these questions. A key feature of this system is that the total volume of emissions leading to the ultimate acceptable gas concentrations is embodied in permits placed on the market immediately. The author's analysis of resulting initial and intertemporal permit prices yields strong reasons for ranking this policy above carbon or other taxes, direct regulation, or other measures. Economic theory provides a way to project how regional decision makers, including public utilities, would adjust abatement costs to prices. These implications are tested with a mathematical programming model that provides estimates of global and regional time paths of permit prices, energy use, and trace gas emissions.