Green Credit Trading

 The green credit trading experiment that I designed is based on the “Cap & Trade” model discussed by Robert N. Stavins in his UN brief on the Kyoto Protocol.  In his discussion of the Kyoto Protocol he intimated that the best method for reducing pollution while minimizing social cost was green credit trading.

 The idea behind my experiment was based on Denise Hazlett and Laura Bakensen’s model of tradable CO2 permits. Originally developed by Robert Stavins with regard to the Kyoto Protocol’s CO2 emissions reduction goal.  My experiment is a cost minimization Cap & Trade Model, that is to say that it is based on cost minimization through green credit trade based on a uniform government emissions cap.

 Green credit trade has been explored since the 60’s as a method to control emissions and protect the environment while minimizing social cost.  As we all know taxes create what is known as a dead weight loss, thus they can never be the most effective method, socially speaking for pollution control.

 As suggested by Robert N. Stavins, this method for dealing with pollution will be the most effective given a certain number of assumptions.  The first assumption is that there is no transportation cost in transferring green credits from one company to another and one country to another.

 The second is that the emission that you are trying to control is not regionally specific, that is to say the pollution in no way depends on the location in which it is emitted.  Both of these assumptions are very bold. As we can see from acid rain in Connecticut, the pollution of other locations created external problems for others. EG acid rain in Connecticut despite low levels of acid rain creating pollutants

Despite Confusion We ended up close to the social cost minimizing equilibrium for a non location specific pollution cap. We ended up at an equilibrium price of We ended up at an equilibrium price of This is only only about 6% off from the equilibrium price of

 It is important to note that this equilibrium eliminates transport costs entirely and disallows outside participants.  The more interesting idea that I had originally decided to analyze for this experiment was if the inclusion of deratives, futures and time costs would make the green credit model as inefficient as an emission tax model.  Also I had the idea, that to control location specific pollutants, that the government should split the polluters by location an impose a “location tax”. A tax dependent on where the polluters are located.

 The larges obstacle that the green credit model has to face is the idea that transportation costs will invalidate it as a superior model.  As well the model depends on the concept that the pollution or behavior you wish to demisish is a truly public good. That is to say that the emissions are not locatio specific.

 SO2 emissions as it can be noted is a very large contributer to acid rain. The problem is that this type of pollution is a locaiton specific pollution unlike the CO2, global warming pollution specified in the Kyoto Protocol.