@article{Pezzey:125832,
      recid = {125832},
      author = {Pezzey, John C.V.},
      title = {Distributing the Value of a Country’s Tradeable Carbon  Permits},
      address = {2001-01},
      number = {412-2016-25793},
      pages = {46},
      year = {2001},
      abstract = {A general proposal is made for initially distributing the  total value of tradeable
carbon permits in a developed  country, which tries to balance allocative and  informational
efficiency, political acceptability, and  equity. Because of the macroeconomic significance  of
carbon, the proposal is quite different from and more  complex than, say, the distribution used
for SO2 permits in  the US sulphur trading programme.
We suggest that  acceptability requires a political (but not legal)  principle of compensating for
the profit that an industry  loses because of carbon control. However, fossil fuel  demand is
relatively inelastic, so making all permits free  (grandfathered) to industries while reducing
total carbon  use would give them large monopoly profits which would  overcompensate for
their losses. Compensation therefore  requires only a small proportion (much less than half)
of  an industry’s carbon permits to be free. Remaining permits  would be auctioned, or given
free to households. If a  sizeable part of permits is auctioned with revenues  recycled as lower
rates of corporate and/or personal income  tax, then most firms outside the fossil fuel
industries  would benefit from carbon control, and so need no  compensation.
We argue that consumers also deserve  compensation for higher prices of fuel and  carbonintensive
products. The split of such compensation  between lump sums (free permits or cash)
and personal tax  cuts depends on the desired balance between equity and  efficiency.
Arguments are also discussed for distributing  permit value as assistance to workers that  face
unemployment caused by carbon control. Many other  details of a distribution scheme are
discussed, such as  where permits should be acquitted, whether free permits  distort
competition, whether foreign-owned firms should get  free permits, and whether free permits
should be phased  out.},
      url = {http://ageconsearch.umn.edu/record/125832},
      doi = {https://doi.org/10.22004/ag.econ.125832},
}