Allocation Of Emission Permits Based On Non-parametric Method And Production Stability

Allocation of emission permits(AEP)is the core issue of emission trading system(ETS).AEP means that decision makers will firstly specify the total emission of pollutants,and then divide it into a number of shares,and finally assigned to different individuals according to certain criteria.Firstly,the approach of AEP is one of the most important issues in ETS designing,which will determine the effectiveness of ETS.Secondly,the improper allocation schemes may allocate massive permits to the inefficient or monopolistic enterprises,which will make a negative impact on effective allocation of environmental resources.Thirdly,the allocated emission quota can affect the polluters’ operation efficiency and their production decision making,simultaneously.If the allocated emission quotas are so far below their actual pollutant emission,their production will be reduced,and therefore their growth will be limited.Therefore,the method of AEP is very important to the effective operation of ETS.At present,there are two main categories of dealing with AEP have been proposed.Compared with the free allocation,auctioning is more feasible in market-oriented economy since it can not only motivate firms to innovate and apply energy saving and emission reduction technology;but significantly reduce the cost of AEP.However in practical applications,auctions are rarely used in terms of the technical complexities of designing efficient multi-unit auctions and the high cost of auction operation between the private and public sectors.By contrast,the free allocations creates incentives to increase production and thus increase emissions.Therefore,the performance-based data envelopment analysis(DEA)considering the inputs and outputs simultaneously,can be adopted and extended to resolve the problem.Unfortunately,the above-mentioned models all basically neglect the problem of production stability when AEP involving.As for DMUs,they not only care about how much quotas they can be allocated,but also care about whether the allocated quotas can smooth their production.Therefore,based on satisfaction degree model proposed by Dai(2014),this paper proposes a DEA-based AEP model to meet the practical production needs.