Abstract
Recently, permit trading system has been used widely for pollution control in many countries. In order to offer more flexibility for permit trading, many systems have incorporated the banking design. At the same time, certain restriction might be imposed on the permit banking coefficients to maintain the environmental quality. Using total suspended particulates control in Kao-shiung and Ping-tung areas as an empirical example, this study analyzes how different banking designs current adopted in other countries could affect the trading market and firms’ emission control behavior. The results show that the banking design has little effect on the reduction costs when the regulation standards are loose. When the standards are strict, a relatively loose setting on the permit banking coefficients could help the government to reach the regulation targets with lower costs.