Incentives for Investment in Advanced Pollution Abatement Technology in Emission Permit Markets with Banking
Environmental & Resource Economics, 2002
We examine the incentives that firms have to invest in cleaner abatementtechnology when the banki... more We examine the incentives that firms have to invest in cleaner abatementtechnology when the banking of permits is allowed in emission permittrading schemes. We show that under certainty permit banking can distortincentives for investment and lead to a sub-optimal amount of investmentspending. Under imperfect information, aggregate abatement costuncertainty and investment irreversibility provide arguments for allowingbanking. We generalize the model to
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