It implies that with tradable permits, the resource manager can use the initial allocation to solve other goals such as political feasibility or ethical concerns without sacrificing cost-effectiveness.
In Alaskan fisheries, for example, some of the quota has been allocated to communities rather than individuals to attempt to protect community interests Ginter, Tradable permits systems may not maximize the value of the resource if the market conditions are not right. Circumstances when the conditions may not be right include the possibility for market power Hahn, , the presence of high. Furthermore, even in the presence of these imperfections, tradable permit programs can be designed to mitigate their adverse consequences.
In contrast to the two previously mentioned imperfections, this one could lead to the degradation of the resource because the aggregate limit could be breached. Another important precondition involves the absence of large uninternalized externalities. For example, fishermen might catch the specified amount of the covered species, but they might use gear that destroys other components of the marine ecosystem.
Polluters that reduce a covered pollutant by switching inputs could well increase emissions of another unregulated pollutant. The regulation could serve to protect one environmental resource at the expense of another. The mathematics underlying the theorems mentioned also can be used to demonstrate similar theoretical properties for environmental taxes. For every tradable permit system that maximizes the value of the resource, there exists an environmental tax that could achieve the same outcome.
In principle, therefore, taxes and tradable permits exhibit a striking symmetry. In practice, however, this symmetry disappears and striking differences can arise.
Once a quantity limit is specified, the government has no responsibility for finding the right price in a tradable permit system; the market defines the price. With a tax system, the government must find the appropriate tax rate—no small task. And with a tax system, the resource rents normally are channeled to the government. With tradable permits, resource users typically retain them. Recent work examining how the presence of preexisting distortions in the tax system affects the efficiency of the chosen instrument suggests that the ability to recycle the revenue rather than give it to permit holders can enhance the cost-effectiveness of the system by a large amount.
How revenues are distributed, however, also affects the attractiveness of alternative approaches to environmental protection from the point of view of the various stakeholders. To the extent that stakeholders can influence policy. Over time the two systems may act quite differently as well if the government decides not to intervene in the market.
In a tradable permits system, inflation will merely result in higher permit prices; the limit will remain intact. With taxes the amount of environmental protection will decline over time as the real value of the tax declines in the absence of some kind of indexing scheme. Conversely, technical progress that lowers compliance cost will result in more environmental protection under taxes than tradable permits. Finally, the presence of uncertainty about the benefits and costs can lead to a preference of one instrument or the other depending on the nature of the uncertainty Weitzman, The academic community has emphasized the importance of co-management of environmental resources, with users having a substantial role.
This is presumed to increase compliance. Although tradable permit systems in principle allow a variety of governance systems, the current predominant form in all three applications seems to be a system of shared management, with users playing a smaller role than envisioned by most co-management proposals. In the case of air pollution, specific quantitative ambient standards are set at the national level, and all programs must live within those limits.
In the sulfur allowance program, a national program, the emissions cap also is set at the national level. In the RECLAIM system, the emissions cap was established by the local air quality management district, but the district is subject to the oversight of the national Environmental Protection Agency EPA and must show how its choice will enable it to meet the nationally set ambient standards.
Fisheries have a somewhat similar governance arrangement. The Secretary of Commerce and his implementing agency, the National Marine Fisheries Service, use their oversight and approval powers to attempt to assure that locally created approaches meet the various requirements of the Magnuson-Stevens Act, as amended.
That allows the Secretary more discretion, which can be used either to exercise stronger control or to allow more community discretion. Although representatives of access right holders usually are represented on these councils, other groups are represented as well. Although the use of true co-management in air pollution control is rather rare, some limited forms are beginning to appear in both fisheries and water.
Water user associations, for example, play a considerable role in allocating water resources in Chile. The absence of centralized control by California over its groundwater has resulted in the growth of a number of basin authorities controlled by water producers.
In fisheries, particularly those involving highly sedentary species such as lobsters, substantial local control by users typically is exercised. Fishers within these zones play a considerable role in defining the rules that govern fishing activity within their zone. Though none of the zones currently involve the use of tradable permits, that option is being discussed.
Following the U. Congress-imposed moratorium on individual transferable quotas ITQs , some alternative self-regulation alternatives arose in fisheries.
In the Pacific whiting fishery in the Bering Sea, the annual total allowable catch TAC of whiting is divided among various sectors, including the catcher-processor vessels, which hold 34 percent of the TAC National Research Council, In April , the four companies holding limited entry permits in the catcher-processor sector agreed to allocate the quota among themselves, forming a cooperative for the purpose.
To avoid possible antitrust prosecution, a potential barrier to user-based management agreements in the United States, members submitted their proposal to the Department of Justice, which approved it. Though this is not a formal tradable permit, the negotiations over allocations among participants have begun to take on some of the attributes of an informal market. It should not be surprising that although tradable permit systems potentially allow for a considerable co-management role, only in fisheries and water is there any evidence of an evolution in this direction.
The pollution and natural resource cases exhibit an important asymmetry. For air pollution control, the benefits from resource protection fall on the victims of air pollution, not on the polluters who use the resource; from a purely self-interest point of view, resource users polluters would be quite happy to degrade the resource if they could get away with it.
On the other hand, water users and fishers both can benefit from protection of the resource. Their collective self-interest is compatible with resource protection.
In general, tradable permit programs fit into one of two categories: a credit program or a cap-and-trade program. The credit program involves a relative baseline. With a credit program, an individual access baseline is established for each resource user.
The user who exceeds legal requirements say by harvesting fewer fish than allowed or emitting less pollution than allowed can have the difference certified as a tradable credit. The cap-and-trade program involves an absolute baseline and trades allowances rather than credits.
In this case a total resource access limit is defined and then allocated among users. Air pollution control systems and water have examples of both types. Fisheries tradable permit programs are all of the cap-and-trade variety. Credit trading, the approach taken in the Emissions Trading Program the earliest program in the United States, allows emission reductions above and beyond legal requirements to be certified as tradable credits.
The baseline for credits is provided by traditional technology-based standards. Credit trading presumes the preexistence of these standards and it provides a more flexible means of achieving the aggregate goals that the source-based standards were designed to achieve.
Allowance trading, used in the U. Acid Rain Program, assigns a prespecified number of allowances to polluters. Typically the number of issued allowances declines over time and the initial allocations are not necessarily based on traditional technology-based standards; in most cases the aggregate reductions implied by the allowance allocations exceed those achievable by standards based on currently known technologies.
Despite their apparent similarity, the difference between credit- and allowance-based trading systems should not be overlooked. Credit trading depends on the existence of a previously determined set of regulatory standards. Allowance trading does not. Once the aggregate number of allowances is defined, they can, in principle, be allocated among sources in an infinite number of ways.
The practical implication is that allowances can be used even in circumstances 1 where a technology-based baseline either has not been, or cannot be, established, or 2 where the reduction is short lived such as when a standard is met early rather than permanent.
The other major difference is that cap-and-trade programs generally establish an upper aggregate limit on the resource use, while the credit programs establish only an upper limit for each user.
In the absence of some other form of control over additional users, an increase in the number of users can lead to an increase in aggregate use and the eventual degradation of the resource. Economists have argued consistently that tradable permits should be treated as secure property rights to protect the incentive to invest in the resource. Confiscation of rights could undermine the entire process. The environmental community, on the other hand, has argued just as consistently that the air, water, and fish belong to the people and, as a matter of ethics, they should not become private property Kelman, In this view, no end could justify the transfer of a community right into a private one McCay, In practice this means that administrators are expected to recognize the security needed to protect investments by not arbitrarily confiscating rights.
They do not, however, give up their ability to change control requirements as the need arises. In particular, they will not be inhibited by the need to pay compensation for withdrawing a portion of the authorization to emit as they would if allowances were accorded full property right status. It is a somewhat uneasy compromise, but it seems to have worked.
One of the initial fears about tradable permit systems is that they would be excessively rigid, particularly in the light of the need to provide adequate security to permit holders. Policy rigidity was seen as possibly preventing the system from responding either to changes in the resource base or to better information. This rigidity could seriously undermine the resilience of biological systems Holling, Existing tradable permit systems have responded to this challenge in different ways depending on the type of resource being covered.
In air pollution control, the need for adaptive management typically is less immediate and the allowance typically is defined in terms of tons of emissions. In biological systems, such as fisheries, the rights typically are defined as a share of the TAC. In this. The first conveys the share of the TAC, while the second conveys the right to catch a specific number of tons of harvest in a particular year. Separating the two rights allows a harvester to sell the right to catch fish in a particular year perhaps due to an illness or malfunctioning equipment without giving up the right of future access.
Water has a different kind of adaptive management need. Considerable uncertainty among users is created by the fact that the amount of water can vary significantly from year to year.
These needs have been met by a combination of technological solutions principally water storage and building some flexibility into the rights system. In the American West, the appropriation doctrine that originated in the mining camps created a system of priorities based on the date of first use.
The more senior rights then have a higher priority of claim on the available water in any particular year and consequently could be expected to claim the highest price Howe and Lee, ; Livingston, Under this scheme, initial entitlements call them Series A Entitlements would be defined for a finite period, but one long enough to encourage investments say, for the sake of illustra tion, 30 years; see Figure The rights and obligations covered by the Series A entitlements would be known in advance.
Emitters holding Series A Entitlements could have the option to switch to the new set of entitlements at any time earlier than the expiration of their Series A Entitlements. Once they switched they would be able to hold Series B Entitlements for their remaining life.
This process would continue until it appeared no more reviews were necessary. In all three applications, the limits are defined on the basis of some notion of sustainable use. Reprinted with permission. The primary AAQS are defined at levels that protect human health. The catch level that fishermen are allowed to take, the total allowable catch, normally would be equal to or less than the ABC National Research Council, The initial allocation of entitlements is perhaps the most controversial aspect of a tradable permits system.
Four possible methods for allocating initial entitlements are:. All four of these have been used in one context or another. Both lotteries and auctions frequently are used in allocating hunting permits for big game. Lotteries are more common in allocating permits among residents while auctions are more common for allocating permits to nonresidents.
First come, first served historically was common for water when it was less scarce. The most common method, however, for the applications discussed here is allocating access rights based on historic use.
Two justifications for this approach typically are offered. Second, it allocates permits to those who have made investments in resource extraction. In this sense it serves to recognize and to protect those investments.
In the absence of either a politically popular way to use the revenue or assurances that competitors will face similar financial burdens, distributing the permits free of charge to existing sources could substantially reduce this political opposition.
Grandfathering refers to an approach that bases the initial allocation on historic use. Under grandfathering, existing sources only have to purchase any additional permits they may need over and above the initial allocation as opposed to purchasing all permits in an auction market.
Although politically the easiest path to sell to those subject to regulation, grandfathering has its disadvantages. The presence of preexisting distortions in the tax system implies that recycling the revenue can enhance the cost-effectiveness of the system by a large amount.
A second consideration involves the treatment of new firms. Although reserving some permits for new firms is possible, this option is rarely exercised in practice. As a result, under the free distribution scheme new firms typically have to purchase all permits, while existing firms get an initial allocation free. Thus the free distribution system imposes a bias against new users in the sense that their financial burden is greater than that of an otherwise identical existing user.
Other initial allocation issues involve determining both the eligibility to receive permits and the governance process for deciding the proper allocation. In fisheries the decision to allocate permits to boat owners has triggered harsh reactions among both crew and processors. In some fisheries the allocation to boat owners has transformed the remuneration arrangements from a sharing of the risks and revenues from a catch on a predefined share basis to a wage system.
Though this transformation can result in higher incomes for crew Knapp, , the change in status has been difficult to accept for those used to being co-venturers, thereby sharing in both the risk and reward of fishing McCay et al.
Processors also have staked their claim for quota especially in Alaska , albeit unsuccessfully to date Matulich et al. The claims are based on the immobility of the processing capital and the fact that allocating quota to boat owners changes the bargaining relationship in ways that could hurt processors Matulich and Sever, This is a prominent feature of the sulfur allowance program, but it can be plagued by adverse selection problems Montero, , b.
Although the largest source of controversy about tradable permits seems to attach to the manner in the permits are allocated initially, another significant source of controversy is attached to the rules that govern transferability. According to supporters, transferability not only serves to assure that rights flow to their highest valued use, but it also provides a user-financed form of compensation for those who decide voluntarily to no longer use the resource.
Therefore restrictions on transferability only serve to reduce the efficiency of the system. According to critics, allowing the rights to be transferable produces a number of socially unacceptable outcomes, including the concentration of rights, the destruction of community interests, and the degrading of both the environment and traditional relationships among users.
Making the rights transferable allows the opportunity for some groups to accumulate permits. The concentration of permits in the hands of a few either can reduce the efficiency of the tradable permits system Hahn, ; Anderson, ; Van Egteren and Weber, or can be used as leverage to gain economic power in other markets Misiolek and Elder, ; Sartzetakis, Although it has not played much of a role in air pollution control, it has been a factor in fisheries Palsson and Helgason, Typically the problem in fisheries is not that the concentration is so high that it triggers antitrust concerns Adelaja et al.
Smaller fishing enterprises are seen as having a special value to society that should be protected. One typical strategy involves putting a limit on the amount of quota that can be accumulated by any one holder. In New Zealand fisheries, for example, these range from 20 percent to 35 percent, depending on the species National Research Council, , while in Iceland the limits are 10 percent for cod and 20 percent for other species Another strategy involves trying to mitigate the potential anticompetitive effects of hoarding.
The U. First, it sets aside a supply of allowances that could be sold at a predetermined high price if hoarders refused to sell to new entrants. Another approach involves directly restricting transfers that seem to violate the public interest.
In the Alaskan halibut and sablefish ITQ program, for example, several size categories of vessels were defined. The initial allocation was based on the catch record within each vessel class, and transfer of quota between catcher vessel classes was prohibited National Research Council, Further restrictions required that the owner of the quota had to be on board when the catch was landed. A second concern relates to the potentially adverse economic impacts of permit transfers on some communities.
For example, in fisheries a transfer from one quota holder to another might well cause the fish to be landed in another community. In air pollution control, owners of a factory might shut down its operation in one community and rebuild in another community, taking their permits with them.
One common response to this problem involves allocating quota directly to communities. The Bering Sea Community Development Quota Program, which was designed to benefit remote villages containing significant native populations in Alaska, allocated 7. For these allocations the community retains control over the transfers, and this control gives it the power to protect community interests. A final concern with transferability relates to possible external effects of the transfer.
Although in theory transfers increase net benefits by allowing permits to. Such external effects are not rare. In water, for example, transfers from one use to another can affect the quality, quantity, and timing of supply for other downstream users 38 Livingston, In air pollution control, transfers can affect the spatial distribution of pollution, and that can trigger environmental justice concerns Tietenberg, b.
Leakage occurs when pressure on the regulated resource is diverted to an unregulated, or lesser regulated, resource, as when fishermen move their boats to another fishery or polluters move their polluting factory to a country with lower environmental standards.
Western U. In the case of a third-party intervention, the transferring parties bear the burden of establishing the absence of damage to third parties. Although this is probably an effective way to internalize the externality, it raises transaction costs significantly and has resulted in many fewer transfers than would have been the case otherwise Livingston, Technology is now making an entrance in water markets the Water Links electronic water exchange in California, for example to lower transaction costs Organization for Economic Co-operation and Development, One strategy used in U.
Regulatory tiering implies applying more than one regulatory regime at a time. Sulfur oxide pollution in the United States is controlled both by the regulations designed to achieve local ambient air quality standards as well as by the sulfur allowance trading program.
All transactions have to satisfy both programs. Thus trading is not restricted by spatial considerations national trades are possible , but the use of acquired allowances is subject to local regulations protecting human health via the ambient standards. The second regulatory tier protects against the harmful spatial clustering of emissions by disallowing any specific trades that would violate the standards , while the first tier allows unrestricted trading of allowances.
Because the reductions in sulfur are so large and most local ambient standards are not likely to be jeopardized by trades, few trades have been affected by this provision. Yet its very existence serves to allay fears that local air quality could be in jeopardy. Standard theory suggests that a fully value-maximizing tradable permit system must have full temporal fungibility, implying that allowances can be both borrowed and banked Kling and Rubin, ; Rubin, Banking allows a.
With borrowing a permit holder can use permits earlier than their stipulated date. No existing system that I am aware of is fully temporally fungible. Older pollution control programs have had a more limited approach. The Emissions Trading Program allowed banking, but not borrowing. The Lead Phaseout Program originally allowed neither, but part way through the program it allowed banking, at least until the program officially ended and any remaining credits became unusable.
Why do so few programs have full temporal fungibility? The answers seem to lie more in the realm of politics than economics. The first concern involves the potential for creating a temporal clustering of emissions. When intertemporal trades are defined on a one-for-one basis, it is possible for emissions to be concentrated in time. Because emissions concentrated in space or time cause more degradation than dispersed emissions due to a nonlinearity in the dose-response function , regulators have chosen to put a priori restrictions on the temporal use of permits despite the economic penalty that imposes.
A second concern has arisen particularly in the global warming context where imposing sanctions for noncompliance is difficult. Some observers have noted that enforcing the cumulative emissions budget envisioned by the Kyoto Protocol on a nation that had borrowed heavily in the earlier years would become increasingly difficult over time Tietenberg et al.
Given the inherent difficulties in enforcing international commitments under the best of circumstances, opponents of borrowing propose to forestall this difficulty by eliminating any possibility of borrowing. They view the resulting increased compliance cost as a reasonable price to pay for taking the pressure off future enforcement. Regardless of how well any tradable permit system is designed, noncompliance can prevent the attainment of its economic, social, and environmental objectives.
Noncompliance not only makes it more difficult to reach stated goals, but it sometimes makes it more difficult to know whether the goals are being met. Although it is true that any management regime raises monitoring and enforcement issues, tradable permit regimes raise some special issues. One of the most desirable aspects of tradable permits, their ability to increase the value of the resource, is a two-edged sword because it also raises incentives for noncompliance.
In the absence of an effective enforcement system, higher profitability from cheating could promote illegal activity. Insufficient monitoring and enforcement also could result in failure to keep a tradable permit system within its environmental limit.
Do monitoring and enforcement costs rise under tradable permit programs? The answer depends both on the level of required enforcement activity greater levels of enforcement effort obviously cost more and on the degree to which existing enforcement resources are used more or less efficiently.
Higher enforcement costs are not, by themselves, particularly troubling because they can be financed from the enhanced profitability promoted by the tradable permit system. In addition to the obvious potential for quota busting that all tradable permit approaches face, fisheries also can face problems with poaching harvests by ineligible fishermen , unreported highgrading discarding low-valued fish to make room in the quota for higher valued fish , and bycatch discards nontargeted species caught and discarded National Research Council, Whether these problems are intensified or diminished by the implementation of a tradable permit program depends in part on the economic incentives confronting participants.
The incentives for highgrading, for example, depend on the magnitude of price differentials for various types and sizes of targeted species. As the price premium for fish of a particular size and type increases, the incentive to use quota for especially valuable fish increases along with the incentive to discard less valuable fish Anderson, Incentives for bycatch can vary considerably as well Boyce, ; Larson et al.
The more leisurely pace of fishing afforded by individual fishing quotas IFQs allows fishermen to avoid geographic areas or times when bycatch is more likely.
For example, the halibut fishery encounters significant bycatches of rockfish. Although most rockfish and thornyheads command high exvessel prices, most of this bycatch was discarded during the derby fishery because halibut were even more valuable.
A greater portion of this bycatch is now being retained. On the other hand, implementing an IFQ regime may favor some technologies over others. If the favored technologies typically involve more bycatch, bycatch rates can rise in the absence of enforcement. Ultimately, therefore, whether highgrading, bycatch, and bycatch discard increase or decrease under an IFQ regime depends on local circumstances, on whether highgrading and bycatch discards are legal or even required , and on the enforcement response.
Every monitoring system must identify both the information that is needed to monitor the operation of the tradable permit program and the management component that will gather, interpret, and act on this information. Data also should be. Effective monitoring systems are composed of data, data management, and verification components. In general, the smooth implementation of a tradable permit program requires two kinds of monitoring data. First, periodic data on the condition of the resource are needed to evaluate the effectiveness of the program over time.
These data are used as the basis for adjusting environmental limits as conditions warrant. Second, managers need sufficient data to monitor compliance with the various limitations imposed by the regulatory system. Monitoring compliance with a tradable permit program requires data on the identity of permit holders, amount of permits owned by each holder, permit, and permit transfers. One key to a smoothly implemented tradable program is ensuring that all data are input to an integrated computer system that is accessible by eligible users on a real-time basis.
Such a system provides up-to-date information on permit use to both users and enforcement agencies. Ideally it also would allow short-notice transfers, such as when a vessel heading for shore has a larger than expected bycatch and needs to acquire additional quota for the bycatch species before landing.
Facilitating this kind of flexibility would reduce the enforcement burden considerably by giving permit holders a legal alternative to illegal discarding without jeopardizing the objectives of the program.
The computer system also should provide easy data entry. Card swipe systems, such as those used in the Alaska halibut and sablefish IFQ fisheries, automatically input all the necessary identification data so that only landings and hence permit use need to be recorded. Entry terminals that are connected to the master computer system should be available at all authorized landing sites. Technology also has played an important role in the U. Both the collection and dissemination of the information derived from the continuous emissions monitors is now handled via the Web.
Special software has been developed to take individual inputs and to generate information both for the public and for EPA enforcement activities. According to Kruger et al. Information technology also permits greater accountability by making the information transparent. Evidence suggests that making the information available. To ensure the accuracy of reported data, it is necessary to build a number of safeguards into the program. In fisheries proper control procedures include both onshore and at-sea components.
An onshore system of checks normally would include a requirement that sales be made only to registered buyers and that both buyers and quota shareholders co-sign the landing entries.
These measures create an audit trail that could be monitored electronically for instances in which a comparison of processed product weight and recorded purchases suggests suspiciously high product recovery rates. The at-sea component would include both onboard observers, where the fishery is profitable enough to bear the cost, and random checks at sea by the appropriate authority or perhaps by video monitoring.
Onboard observers may be particularly important in fisheries where bycatch and highgrading are expected to be problems. A successful enforcement program requires a carefully constructed set of sanctions for noncompliance. Penalties should be commensurate with the danger posed by noncompliance. Penalties that are unrealistically high may be counterproductive if authorities are reluctant to impose them and fishermen are aware of this reluctance.
Unrealistically high penalties also are likely to consume excessive enforcement resources as those served with penalties seek redress through the appeals process. Overages greater than 10 percent are considered a violation and are handled by enforcement personnel. In an ideal system, more serious noncompliance in terms of either the magnitude of the offense or the number of offenses could trigger civil penalties fines and possible seizure of catch, equipment, and quota.
Criminal penalties should be reserved for falsification of official reports and the most serious violations. Other sanctions are possible. In the sulfur allowance program, for example, those found in noncompliance must not only pay a substantial financial penalty for noncompliance; they must also forfeit a sufficient number of future allowances to compensate for the overage.
It is also possible to only allow those in compliance to transfer permits. Any egregious violations can lead to forfeiture of the right to participate in the program at all. Income levels from fishing generally are bolstered by the implementation of an effective IFQ program.
An effective program presumes effective enforcement. For society, the existence of tradeable permits enables pollution abatement to be achieved in the least costly manner. Over time, pollution standards can be tightened, increasing the value of the permits and the pressure on market participants. Credits are traded within defined trading areas.
A number of these schemes in water pollution are still in the pilot phase, and experience is still accumulating. Mainly, tradeable permits are used to manage air pollution.
Tradable pollution permits C7. Trading in pollution permits arises in the following situations: Permits to discharge into specific water bodies issued to local firms and wastewater treatment plants e. A maximum permissible emission rate is determined by government and permits that allow for the production of a maximum emission are issued to industry players. These permits can subsequently be traded to firms that require more permits in order to continue their activities.
In the United States, the tradable permits system is used to govern carbon emissions and nitrous oxide. The system strives to reduce the overall emissions by industry and to incentivize the reduction of emissions. Thus, if a firm produces lower emissions than their permits allow for, they may trade these to organizations that need more permits.
Those that reduce pollution, thus receive remuneration from firms that produce more pollutants. The system of tradable permits is applied in many countries and areas including the EU, New Zealand and Australia. Subscribe to the Safeopedia newsletter to stay on top of current industry trends and up-to-date know-how from subject matter authorities. Our comprehensive online resources are dedicated to safety professionals and decision makers like you.
By: Daniel Clark. By: Tamara Parris CD. Dictionary Dictionary Term of the Day. Optical Density.
0コメント