Emission Taxes and Tradable Permits: A Comparison of Views on Long Run Efficiency

We compare three different views on the long run efficiencies of emission taxes which include thresholds, and of tradable emission permits where some permits are initially free. The differences are caused by different assumptions about whether thresholds and free permits should be subsidies given only to firms that produce, or full property rights. Treating tax thresholds, as well as free permits, as property rights would depart from the conventional view, but would allow greater flexibility in making economic instruments both efficient and acceptable. Such flexibility could be very important in achieving efficent control of greenhouse gas emissions. (JEL H23, Q28)