ABSTRACT
It is now widely agreed among economists that marketable permits are an efficient strategy for controlling environmental pollutants and an extensive literature on their properties has developed. In addition to cost considerations, banking may have important implications for emission levels. Unlike averaging and trading, which can be designed to result in the same level of emissions as a uniform standard, banking necessarily results in different emission levels from the base standard. To generate emission credits, manufacturers can choose from two forms of pollution abatement: they can reduce the amount of hydrocarbon emissions per vehicle by installing additional pollution abatement equipment, or they can change their vehicle sales mix and sell more vehicles with lower emission characteristics. A manufacturer that more than meets its average emission requirement in any year earns credits that can be sold to other firms or banked for future use or sale.
