The political economy of international emissions trading scheme choice: A theoretical analysis

The Kyoto Protocol allows emissions trading between the Annex B countries. We consider three schemes of emissions trading: government trading, permit trading, and credit trading. The schemes are compared in a public choice se tting focusing on group size and rent-seeking by interest groups. We find t hat industry will have most influence on government policy, with environmen tal organizations taking sect,nd place. Our conclusion is that most interes t groups prefer a combination of government trading and credit trading even though permit trading is more efficient. Furthermore, some governments pre fer government trading because it retains the possibility of hot air tradin g.