The political economy of emissions trading

This thesis is a positive analysis of emissions trading systems' implementation. We explain why allowances are generally granted for free even though normative economic analysis recommends their sale. We show empirically that free tradable permits, source of windfall profit, motivate rent seeking behaviours. The study focuses on the US market for SO2 emissions allowances. The initial allocation rule resulted from parliamentary discussions that looked like a zero sum game. We formalize it as an endogenous sharing rule, function of lobbying effort, and we test it using political (money) contributions.We analyse theoretically the behaviour of an influenced regulator that has chosen to organize a market for permits and that must still decide on two policy variables: the whole quantity of permits and the way to allocate them initially. We formalize this decisions making process with the common agency model of politics.We show that the choice of an initial allocation rule is not neutral in presence of political market failures (lobbying). The decision to sell the permits or to grant them for free modifies the shareholders' incentive, in a polluting industry, to pressure for or against the reduction of legal emissions.Then, we analyse the public arbitration between the two policy variables when several industrial lobbies play a partially cooperative game for the free permits. The regulator chooses in priority to grant the rights for free rather than to manipulate their quantity, and this constitutes an efficient answer to the political influence. (author)