Assessing the Distributional Impacts of Transferable Pollution Permits: The Case of Phosphorus Pollution Management at a River Basin Scale
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Although the initial allocation of pollution permits is neutral in terms of efficiency, it
does have a significant impact on distributive equity. In this paper, we examine the two
main categories of permit allocation rules, the distributive and the reductive, for controlling
phosphorus pollution in a small catchment in South West England. Based on the
premise that the regulatory choice compromises efficiency and equity, the main result of
this paper is that an allocation of permits in proportion to the intensity of environmental
preferences is a “win-win” choice. The reason is that it simultaneously achieves two
goals. First, it is efficient (or cost-effective) since a permit system achieves a prespecified
target at a minimum abatement cost, while second, it is the only allocation
rule which reduces the income inequality of the baseline scenario.