We study the impacts of bankruptcy risk on the performance of market-based pollution control policies. In chapter one, we concentrate on emissions trading markets. We find that firms that risk bankruptcy demand more permits than if they were financially secure. Thus, bankruptcy risk in a competitive market for tradable permits causes an inefficient distribution of these permits among firms. Moreover, the equilibrium distribution of permits is dependent on the initial allocation of permits. Thus, the main reasons for implementing emissions trading markets do not hold when some firms are financially insecure. In fact, the inefficiency that is associated with bankruptcy risk is worsened if financially insecure firms are given a smaller share of the initial allocation of permits. In chapter two, we investigate the influences of bankruptcy risk on imperfectly enforced emissions taxes. Under favorable, but not unrealistic conditions, an imperfectly enforced emissions tax produces an efficient allocation of individual emissions control; the aggregate level of control is the same whether enforcement of a tax is sufficient to induce the full compliance of firms or not, and differences in individual violations are independent of firm-level differences. All of these desirable characteristics disappear when some firms under an emissions tax risk bankruptcy—the allocation of emissions control is inefficient, imperfect enforcement causes higher aggregate emissions, and financially insecure firms choose higher violations.

A large number of concepts related to carbon offset trading policy are currently being discussed such as baseline, leakage, permanence, monitoring, verification, enforcement, financial feasibility, and third party verification. Cutting across these concepts are a variety of risks and uncertainties. These risks play a major role in developing effective market designs that achieve aggregate emission caps while encouraging market participation and investment in carbon reduction activities. What are the risks associated with carbon offset policy and how do such risks affect incentives for investing in carbon offsets? A literature review of carbon trading risks is developed. Risks associated with carbon offsets policy can be classified into three major categories: institutional/policy, project level and measurement risks. Institutional/policy risks are related to uncertainties surrounding the future policy decisions and the institutional arrangements established to define baselines, stipulate monitoring/enforcement requirements, and define and estimate leakage. Baseline estimates are necessary to calculate the net carbon reduction of a program or project. Monitoring/enforcement risk is associated with the regulators' ability to detect whether the promised carbon sequestration activities are undertaken. Leakage occurs when carbon sequestration at one site encourages increase in carbon emissions on some other site. Project risk refers to non-performance of a carbon sequestration project in terms of not achieving the requisite target of carbon sequestration. Project risk includes physical risk and financial risk. Physical risks are associated with unexpected carbon emissions due to natural hazards or events such as fire, or hurricanes or changes in the rate of sequestration, which depend on weather and pests. Landowners will not participate in carbon sequestration programs if they expect to incur financial losses by participating. Measurement risk arises because it is difficult to measure actual rates of carbon sequestered due to spatial and temporal heterogeneity of carbon present in agricultural and forest production. Forests are a principal carbon "sink" for sequestering carbon from the atmosphere. The provision of trading emission rights under the Kyoto Protocol will provide forest landowners the opportunity to reap financial gains from sequestering carbon and trading rights to emit carbon in carbon permit markets. However, landowners may be liable for repaying all or some of the proceeds received for sequestering carbon if stored carbon is released during the contract period. Hurricane damage to forests may cause extensive mortality and subsequent emission of carbon dioxide from decomposing biomass. Such liabilities may reduce landowners' incentives to sequester carbon. This research evaluates incentives of an individual forest landowner for sequestering and trading carbon, given the risk of carbon loss from hurricanes. Results of our simulation model reveal that the effect of hurricane risk on landowners' behavior depends on the variability of returns from carbon and timber and the ability of landowners to mitigate risk by diversifying forest holdings across regions with different sequestration rates and different hurricane strike probabilities. Some risk mitigation strategy might be required to create the necessary incentives for landowner participation especially in hurricane prone regions. We evaluate incentives of forest landowners for sequestering and trading carbon, given the risk of carbon loss from hurricanes, and an opportunity to insure their losses. Results of simulation model reveal that the effect of hurricane risk depends on the variability of returns from carbon and timber and landowners' ability to mitigate risk by diversifying forest holdings across regions or transferring risk by purchasing insurance. Although, landowner can spread the risk of carbon loss by diversifying into different regions, insurance has a role to play over and above diversification by reducing landowners' risk (variance) from forestry investments for sequestration and timber purposes, even when timber losses are not insured. / Ph. D.

Thesis (doctoral)--Europa-Universität Viadrina, Frankfurt (Oder), 2007. / Includes bibliographical references (p. 283-300).

Over the last four decades emissions trading has enjoyed a high profile in environmental law scholarship and in environmental law and policy. Much of this regulatory discussion is promotional, preferring emissions trading above other regulatory strategies without, however, engaging with legal complexities embedded in conceptualising, scrutinising and managing emissions trading schemes. The combined effect of these debates is to create a perception that emissions trading is a straightforward regulatory strategy, imposable across various jurisdictions and environmental settings. This thesis shows that this view of emissions trading is problematic for at least two reasons. First, emissions trading responds to distinct environmental and non-environmental goals, including creating profit-centres, establishing a governance regime aimed at substituting state control of common resources, and ensuring regulatory compliance. This is important, as the particular purpose entrusted to a given emissions trading regime has, as its corollary, a particular governance structure, according to which the regime may be constructed and managed. Second, the governance structures of emissions trading regimes are culture- specific, which is a significant reminder of the importance of law in understanding not only how emissions trading schemes function but also what meaning is given to them as regulatory strategies. This is shown by deconstructing emissions trading discourses: that is, by inquiring into the assumptions about emissions trading that feature in the literature and in debates involving law- and policymakers and the judiciary at the EU level. Ultimately, this thesis makes a strong argument for reconfiguring the common understanding of emissions trading schemes as regulatory strategies, and sets out a framework for analysis to sustain that reconfiguration.

The Emission Trading Scheme for green house gases is a key tool of European climate protection. Including the road transport sector might be a promising strategy to limit its CO2 emissions. This could be realized within a common market (trans-sectoral trading permitted) or separated markets (trans-sectoral trading not permitted). Starting from different assumptions on emission reduction objectives, the impact of both options is analyzed using a quantitative model. Although an emission trading scheme is ecologically effective regardless of the trading model, it turns out that CO2 emissions and emission allowance prices differ strongly between both design options due to sector specific price elasticities of allowance demand. (authors' abstract)

This thesis, examines three research questions concerning the coherence between the European Union (EU) rules about State aid for environmental protection and the “polluter-pays-principle” (PPP) in the context of the free allocation practice in the European Union Emissions Trading System (EU ETS).  The aim of the first research question is to study whether the free allocation of emission rights within the EU ETS is compatible with the EU State aid rules. The conclusion to this research question is that the free allocation practice does fulfil the criteria to constitute State aid but that the Commission has permitted derogations against this prohibition, provided certain conditions such as necessity and proportionality are fulfilled.   The second research question is whether the free allocation method is compatible with the PPP. The PPP can be divided into an economic dimension and a legal dimension and it is concluded that the free allocation practice is contrary to at least the legal dimension of the PPP. According to the OECD, exceptions from the principle can be made but the EU has not established conditions for when such derogations from the PPP can be made.   The third research question concerns the compatibility between the EU State aid rules and the PPP. Generally there is no disharmony between the State aid rules and the PPP, since the PPP should not be seen as a mere prohibition against aid to polluters, but can also be considered a complement to State aid rules. However in the specific case of the free allocation rules in the EU ETS, State aid measures contrary to the PPP are carried out. Since the EU has not established conditions for whether derogations from the PPP can be made, it is concluded that the free allocation practice within the EU ETS does expose a disharmony between the PPP and the State aid rules. It is suggested that the EU clarifies the conditions for permitting derogations from the PPP, in preparation for the fourth phase of the EU ETS.

碳排放权和其他生产投入类似，是很像大宗商品投入的生产要素。然而，参与碳交易的公司只需要在某个时间，比如一年的结尾实现碳排放权限的减量。碳排放的另一个重要特点是不可忽略的固定交易成本。本文试图揭示参与碳交易的企业应该如何优化协调其生产以及碳排放权的采购决策，以尽量减少其在长期成本。在每个阶段，该公司基于已有的排放权，波动的市场价格和库存水平决定其排放权的购买数量和生产量。我们给出了最优的联合决策结构特征: 最优排放权采购欢是状态依赖型的(s，S)型决策。生产决策基本上是状态依赖型的基库守存决策。分解的启发式计算被发现是有效的计算研究。我们解决方法是定义一类具有一类性质的二维的函数，在一个维度上定义类似K-凸函数的性质，并在另一个维度上定义类似凸函数的性质。 / The trading of emissions permits, as an effective market-based approach for emissions control, is becoming widespread over the world. Similar to any other production input, the emissions permit is a factor of production much like commodity inputs. However, a firm participating in emissions trading has only to balance its permits at the end of a time horizon, say one year. Another key feature of permit trading is the existence of non-negligible, fixed, transaction costs. This paper attempts to shed light on how such a firm should optimally coordinate its production and permit purchasing decisions in order to minimize its total cost in the long run. In each period, the firm has to decide on its permit purchase quantities and production levels based on its on-hand permit and inventory levels as well as the market-prevalent permit price. The latter evolves as a Markov process and the firm also faces random demand. We characterize the optimal joint policy structure: an optimal purchase policy is of the state-dependent (s, S) type and an optimal production decision nearly follows a state-dependent base-stock form. A heuristic based on decomposition is found to be effective from computational studies. Our enabling technique is the identification of a class of two-dimensional functions that in one dimension it looks like K-convex and in another it is similar to convex. / Detailed summary in vernacular field only. / Yuan, Quan. / Thesis (Ph.D.)--Chinese University of Hong Kong, 2012. / Includes bibliographical references (leaves 74-84). / Electronic reproduction. Hong Kong : Chinese University of Hong Kong, [2012] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Abstract also in Chinese. / Abstract --- p.i / Abstract in Chinese --- p.ii / Acknowledgements --- p.iii / Contents --- p.vi / List of Tables --- p.viii / List of Figures --- p.ix / Chapter 1 --- Introduction --- p.1 / Chapter 1.1 --- Motivation --- p.1 / Chapter 1.2 --- Purpose of the Work --- p.3 / Chapter 1.3 --- Structure of the Work --- p.4 / Chapter 2 --- Literature Review --- p.6 / Chapter 3 --- Formulations --- p.10 / Chapter 4 --- A New Class of K-convex Functions --- p.13 / Chapter 4.1 --- A Class of K-Convex Functions --- p.13 / Chapter 4.1 --- Convex Functions --- p.13 / Chapter 4.1.2 --- K-convex Functions in R¹ or Z¹ --- p.15 / Chapter 4.1.3 --- K-convex Functions in R[superscript n] or Z[superscript n] --- p.18 / Chapter 4.1.4 --- C²(K) Functions --- p.19 / Chapter 4.2 --- Z¹ Policies --- p.24 / Chapter 4.3 --- Appendix of Chapter 4 --- p.27 / Chapter 5 --- Optimal Policy --- p.43 / Chapter 5.1 --- A Transformation --- p.43 / Chapter 5.2 --- Policy Characterization --- p.44 / Chapter 5.3 --- Appendix of Chapter 5 --- p.48 / Chapter 6 --- Heuristic and Lower Bound --- p.57 / Chapter 7 --- Numerical Study --- p.61 / Chapter 7.1 --- Parameter Setups --- p.61 / Chapter 7.2 --- Non-monotone Trends in Optimal Policy --- p.63 / Chapter 7.3 --- Heuristic Performance --- p.65 / Chapter 8 --- Concluding Remarks --- p.72 / Bibliography --- p.74

<p>International regulations target a global reduction of carbon dioxide (CO2) emissions through the allocation of national reduction targets and the definition of mechanisms to achieve these targets. One of these mechanisms is international emissions trading, these trading programs have been the targets of widespread criticism since they were introduced into the policy-making arena. The point of departure in this study has been that the trading raises questions about morality, since it implies signals, which legitimates pollution. The main purpose with this study has been to find out if emissions trading systems can be morally justified with the method of wide reflective equilibrium. From the study it was found that the moral intuition; it is wrong to pollute the environment, and perform activities, which legitimates pollution, finds support from the different theories within environmental ethics and Kantian ethics. But, it was also found that there are a number of background theories, such as neo-classical economic thinking, liberalism, and utilitarianism, that supports the notion of emissions trading. The paper argues that even though the concept of CO2-emissions trading raises moral questions it can be morally defended on the basis of rationality. When the theory about specification is applied to the concept of emissions trading it is possible to reach a situation were a wide reflective equilibrium is achieved.</p>

This paper is written as part of a two-year study of climate change policy choices facing Sweden, conducted under the auspices of the Center for Business and Policy Studies in Stockholm. As such, it aims to be a primer on emissions trading as an instrument for limiting greenhouse gas (GHG) emissions under the Kyoto Protocol to the Framework Convention on Climate Change. The first section notes general considerations concerning emissions trading, particularly in relation to climate policy. The second section explains the many forms of emissions trading included in the Kyoto Protocol. The third section provides a brief review of emissions trading proposals that have been advanced in Europe as of mid-2000. The fourth section addresses issues in the design and implementation of a national GHG emissions trading system. The brief conclusion is followed by an appendix, which draws applicable lessons concerning the choice and design of a cap and trade system from the U.S. SO2 emissions trading program. / Abstract in HTML and technical report in PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/) / Includes bibliographical references (p. 38-39).

International regulations target a global reduction of carbon dioxide (CO2) emissions through the allocation of national reduction targets and the definition of mechanisms to achieve these targets. One of these mechanisms is international emissions trading, these trading programs have been the targets of widespread criticism since they were introduced into the policy-making arena. The point of departure in this study has been that the trading raises questions about morality, since it implies signals, which legitimates pollution. The main purpose with this study has been to find out if emissions trading systems can be morally justified with the method of wide reflective equilibrium. From the study it was found that the moral intuition; it is wrong to pollute the environment, and perform activities, which legitimates pollution, finds support from the different theories within environmental ethics and Kantian ethics. But, it was also found that there are a number of background theories, such as neo-classical economic thinking, liberalism, and utilitarianism, that supports the notion of emissions trading. The paper argues that even though the concept of CO2-emissions trading raises moral questions it can be morally defended on the basis of rationality. When the theory about specification is applied to the concept of emissions trading it is possible to reach a situation were a wide reflective equilibrium is achieved.