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UBC Theses and Dissertations

Quantitative analysis of quota trading behaviour at the end of the quota year Sterelyukhin, Alex

Abstract

The Canadian supply management system offers some lessons for the design of a domestic permit trading system. One of the objectives of the domestic trading system is minimizing costs and maximizing the system's efficiency for participants and system administrators. This paper suggests that a permit trading system designed with a longer permit period and without a grace period can be more efficient than a system designed with a shorter permit period and a grace period for compliance. This study is based on Canadian Supply Management System experience and examines the Canadian dairy industry, where two different schemes (monthly and annual) have been used. Under the annual scheme, a strong compliance mechanism stimulates participants to exchange quotas during the dairy year (permit period) and does not require burdensome, non-compliance procedures after the permit period ends. The monthly scheme is characterized by a short permit period and a grace period for compliance. This study examines how these two schemes affect participants' behavior on the quota exchange. The empirical results show evidence of the influence of different schemes on farmers' behaviours regarding the quota exchange. As a conclusion, the paper recommends the use of a permit trading mechanism with a longer permit period and without a grace period for the design of a carbon trading system. The results support Barichello (2002), who developed the Canadian domestic permit trading scheme on the basis of receiving an offset from agricultural soil carbon sinks.

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Attribution-NonCommercial-NoDerivatives 4.0 International

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