Abstract
A programming model is used to investigate the economic impacts of the permit trading market in Kaohsiung county and Pingtung county in Taiwan. Different initial allocation rules of permit are used to study the equity issues and the trading volume. The results show that the total abatement costs of reaching the 10% reduction target based on year 2000 emission levels is about $98 million and the equilibrium permit price is $2,000 per ton. When the equity, defined as the evenness in changing the environmental burden among firms between an air pollution fee policy and a permit policy, is taken into consideration for the initial allocation, the allocation rule based on the firms’ average revenue is found to be the most equitable.