Kling, Catherine L.; Zhao, Jinhua

Economics Letters Vol. 69 no. 2 (November 2000): 235-38.

When marketable emission permits affect the entry and exit decisions of competitive firms, all permits should not be distributed free of charge. Depending on the nature of the pollutant, an optimal share of the permits should be auctioned with others freely distributed to ensure long-run efficiency. All of the permits should be auctioned for global pollutants, but for local pollutants, some of the permits should be free.