Abstract
The paper is focused on the development of the design of a cap-and-trade market that would provide a straightforward method allowing to directly calculate market price(s) and permit trades for multilateral trades. We use the emission discharge permit (EDP) for NO2 emissions as the property right to be traded and consider relevant regional environmental constraints that are always satisfied in each market solution. Next to developing the theoretical formulation of the model, we demonstrate the functioning of the common pool trading model using numerical simulations based on the data taken from studies by the International Institute for Applied Systems Analysis (IIASA). A sensitivity analysis which shows how the system might behave under uncertainty is also presented.
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