Purdue Climate Change Research Center

Experimental Testbeds for New Applications of Environmental Trading Programs

Funded by the U.S. Environmental Protection Agency

The proposed testbed experiments will provide policy guidance for several important emissions trading design issues. The first experimental testbed will study how emissions permit markets function when governmental authorities conduct international (or interstate) trading, and do not allow unrestricted trading between individual firms in different countries and states. The second testbed will examine simultaneous trading for multiple related pollutants, such as different greenhouse gases, and will compare market performance to alternative designs that combine the different pollutants in the same market by employing trading ratios based on their global warming potential. The third experiment will study how banking incentives are affected by emissions uncertainty and alternative banking policy rules that may depreciate banked allowances or cap withdrawal rates to reduce temporal and geographic “hot spots.”

The overall project results should provide practical answers and advice to improve management of local environmental problems, such as those where banking considerations may be very important, as well as national and global problems featuring inter-jurisdictional enforcement challenges and multiple related pollutants. Carefully designed emissions trading systems have the flexibility to confront these and other challenges, but only if they are guided both by economic theory and by empirical evaluation in controlled settings.


  • Timothy Cason, Economics
  • John Stranlund, University of Massachusetts
  • John Spraggon, University of Massachusetts
  • James Murphy, University of Alaska
  • David Porter, Chapman University
  • Stephen Rassenti, Chapman University
  • Vernon Smith, Chapman University

Contact Information

Purdue University
203 S. Martin Jischke Drive
MANN 105
West Lafayette, IN 47907