Abstract

Joint work with Professor Ulrich Wagner and Dr Dana Kassem.

Market-based climate policy decentralises abatement decisions via a carbon price, for example, by establishing a permit market for CO₂ emissions. Since CO₂ emissions are often released jointly with conventional air pollutants, CO₂ permit trades give rise to implicit trades in various co-pollutants. Unlike CO₂, these co-pollutants are not traded on a tonne-for-tonne basis, yet they have local environmental impacts. Depending on the spatial distribution of emitters and exposed populations, this can lead to undesirable outcomes. We develop an empirical framework to measure air-pollution trades and evaluate their economic consequences. We apply this framework to provide the first estimates of the welfare and distributional effects of co-pollutant trades on the European carbon market.