Emission Discharge Permits, Ambient Concentrations, and a Margin of Safety: Trading Solutions with a Computer-Assisted Smart Market for Air Quality

摘要

The process of calculating market-clearing prices for cap and trade policies for air quality remains problematic. The permit trading processes are designed to mimic the cost-minimizing outcome. An additional shortcoming is the lack of attention to elements of uncertainty in the permit price calculations. In this paper, we design a market process for allocating permits to achieve the same type of behavior we observe for each decision-maker in the overall cost minimization model. We aim to design a modeling system that would be easy and efficient to operate. We use a method known as a computer-assisted "smart market" which has been used in a number of electricity-pricing situations proposed and applied to some types of environmental and resource management problems. The theoretical structure of the smart market model with a safety margin is provided and then the elements of the margin of safety are explored in depth. Finally, a set of pricing rules for the permits that reflect a margin of safety are examined, and issues related to their implementation are explored.