مبادله جواز آلودگی در تعادل عمومی پویا: آیا می توان بهینگی و مقبولیت را آشتی داد؟

In this paper we study the dynamic general equilibrium path of an economy and the associated optimal growth path in a two-sector overlapping generation model with a stock pollutant. A sector (power generation) is polluting, and the other (final good) is not. Pollution is regulated by tradable emission permits. The issue is to see whether the optimal growth path can be replicated in equilibrium with pollution permits, given that some permits must be issued free of charge for the sake of political acceptability. We first analyze the many adverse impacts of free allowances, and then we propose a policy rule that allows optimality and acceptability to be reconciled.

Since Montgomery (1972) it is well established both in the economic literature and in the policy debate that the way pollution permits are issued does not affect efficiency. This finding has been widely used in the policy debates about the carbon markets created under the Kyoto protocol, and the EU Emission Trading Scheme that came into force in 2005 (see IEA, 2005, or Ellerman et al., 2010). While it is well known that this result only holds in a static setting and in partial equilibrium, only a few studies have scrutinized the properties of a market of tradable permits in a dynamic general equilibrium. The exception is the stream of research led by Bovenberg, Goulder and Parry on the double dividend issue (e.g. Bovenberg and De Mooij, 1994, Goulder, 2002 and Parry et al., 1999). In an overlapping generation framework (OLG),1Jouvet et al. (2005) showed that decentralization of the optimal path can be obtained with lump-sum transfers only if tradable permits are not given to the polluting firms for free. This result contrasts with the standard OLG model (Allais, 1947 and Diamond, 1965) without environmental constraints where the optimal policy can be decentralized with lump-sum transfers without any other conditions (on these issues, see De La Croix and Michel, 2002). With an environmental externality, free permits act as a subsidy that increases the return to the owners of the firm's capital, which leads to a major distortion in the economy. Despite the fact that the research mentioned above, by using general equilibrium models, suggests that auctioned permits or emission fees dominate the market in tradable permits with free endowment in terms of welfare, free allocation (via grandfathering) remains the main policy option in practice. This is true for the US SO2 market, the EU-ETS market, and also under the Kyoto protocol.2 Stavins (1998) explored the motives that lead policy makers to favor free allocation rather than auction, which we will call acceptability. We follow Stavins (1998) and Goulder (2002) by defining acceptability as the property that environmental regulation does not reduce a firm's profit. Clearly, if such a policy is possible, both the polluters (the firms) and the polluted (the consumer) will agree on the proposed policy. As explained by Stavins, existing firms favor freely allocated tradable permits because they convey rents (known in the literature as windfall profits) to them. These windfall profits create a distortion in capital allocation among firms by increasing the total capital return, since extra profits are given to the shareholders. Furthermore, emission permits also create entry barriers since newcomers have to purchase permits from the existing firms ( Koutstaal, 1997). The economic literature shows that optimality cannot be reached because it will be rejected by the polluters (here, the firms) if all the permits are auctioned. Acceptability suggests giving pollution permits for free, but optimality requires them to be fully auctioned, or an emission tax to be levied. Thus, optimality and acceptability appear as conflicting issues. Can the two policy options be reconciled? In this paper we question this result. We extend Jouvet et al. (2005) by developing a two-sector two-good overlapping generation model.3 This new framework will allow us to scrutinize the redistributive effects of various allocation rules of pollution permits in the economy and among the productive sectors. Dynamic issues related to the environment have long been the subject of economic analysis, especially in the framework of optimal growth models. In this framework, firm shareholders are well identified and capital accumulation can be fully studied. This is particularly important since we are interested in the effect of permit allocation on the optimal growth conditions. We show that the optimal path can be decentralized while satisfying the acceptability condition that firms' profits are not reduced. We provide the policy rule for that. Our main contribution is the annulment of windfall profits through this policy rule, based on implicit lump-sum transfers, that tolerates grandfathering or the actual policy in place. Furthermore we show the necessity for combining both quantity and price-based regulations to reach that result. The paper is organized as follows. In Section 2 the setting is presented. The optimal growth problem is laid out in Section 3, where we explicitly identify the conditions for optimal growth. In Section 4, we define a dynamic general equilibrium with pollution permits and show why giving free permits to the polluters cannot lead to optimal growth. In Section 5 we explore alternative policy solutions and suggest a way in which optimal growth and acceptability can be reconciled. In Section 6, we study the long run effects of such policies. The last section is the conclusion.

The purpose of this paper was to question the idea that political acceptability and optimality are conflicting goals in the field of pollution control. We have modeled a two-sector dynamic general equilibrium economy in which a global pollutant is regulated with tradable emission permits, some of which are allocated free of charge for the sake of acceptability. Our main results are that optimal growth can be replicated even when some permits are given for free, but this requires two conditions: (i) permits must be given to all firms following a given sharing rule (provided in the paper), and (ii) the windfall profits must be redistributed among agents using an adequate fiscal policy. This first result shows that quantity-based regulation and price regulation are best used in concert, not as substitutes. Second, acceptability à la Stavins (1998) can be combined with optimal growth if the polluting sector is substantially larger than the non-polluting sector. In this case, the windfall profits given to the polluters will be large enough to compensate for the pollution abatement costs and for the purchase of permits from the non-polluting sector.