Markets for tradeable emission and ambient permits: A dynamic approach

This paper discusses trade mechanisms in pollution permit markets. Proofs are given, that sequential, bilateral trade in tradeable emissions permits converges to a market equilibrium with minimal total costs of pollution control. If ambient or deposition permits are traded, the convergence of bilateral transactions occurs only in the case of a single receptor. For multiple receptors, the proof of convergence for tradeable emissions and ambient permits is given for two trade mechanisms: sequential, multilateral trade and a Walrasian auction.
KEYWORDS: Bilateral and multilateral trade; Sequential; Tradeable emission and ambient permits; Walrasian auction

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