On efficiency gains from emissions trading: Have they been exaggerated?
Explored in this paper are some effects of international emissions trading when no international authority has the power to impose an e¢ cient cap. Rather, we assume that governments must approve of national commitments and that their behaviors are not reflected by efficient bargaining. In such a setting, having permits transferrable creates certain incentives that are absent with non-tradeable quotas. If these incentives are pursued, we find that international emissions trading may result in negligible gains in environmental quality and economic effiency.