Comparing Permit Allocation Options: The Main Points

In discussions about the policy design of domestic emission trading, e.g., when implementing the <p> Kyoto Protocol, the two permit allocation alternatives ­ auctioning and allocation gratis <p> (grandfathering) ­ are often pitted against each other as representing utopian cost-effectiveness and <p> political realism, respectively. In this note, an attempt is made to extract the main points of a <p> comparison between the two options with respect to efficiency and distribution.