Auctions and Alternative Procedures for Allocating Pollution Rights

Transferable Discharge Permits for Control of SO2Emissions from Illinois Power Plants

“…Many researchers 20 " 25 have discussed the tradeoffs between these two options. Lyon 26 showed that for phosphorus removal from sewage, the financial cost to the dischargers may exceed the cost of uniform treatment, so that, from the discharger's point of view, the cost savings attained by a market program is more than offset by the cost of permits. The results of the present study (see Table V) suggest, however, that such may not be the case for SO2 emissions.…”

“…26 Table VI shows the initial distribution of permits under several bases, and the 1990 holdings after trading for the three scenarios. The uniform SIP rollback program is an example of the first type of basis.…”

“…It is generally accepted that barring such ideal mechanisms, the incentive for truthful bidding increases as the number of market participants increases and the fraction of the total number of goods controlled by each decreases. 26 " 28 If pollution control decisions (and the associated permit trading decisions) are made at the plant level (as in this analysis), 28 power plants are involved. Many of these individual plants, however are owned by one of the four major Illinois utilities.…”

A Permit Allocation Contest for a Tradable Pollution Permit Market

“…In an auction, permits are allocated to each …rm based on their monetary bid relative to every other …rm [4,6,12,17,18,25]. Auctions are often considered to be a 'lumpsum'allocation mechanism as permits are distributed to each …rm independent of their historical emissions.…”

Using contests to allocate pollution rights

“…In an auction, permits are allocated to each …rm based on their monetary bid relative to every other …rm (Lyon 1982;Hahn and Noll 1982;Oehmke 1987;Franciosi et al 1993;Cramton and Kerr 2002). Auctions are often considered to be a 'lump-sum'allocation mechanism as permits are distributed to each …rm independent of their historical emissions, thus removing one of the problems arising in updated grandfathering schemes.…”