Auctioning Escape Permits for Multiple Correlated Pollutants Using CMRA

TL;DR

This paper develops an auction mechanism for allocating pollution permits across multiple correlated pollutants, improving pollution control efficiency in complex environmental settings.

Contribution

It extends the CMRA to handle multi-pollutant escape permits with interdependent reduction costs, demonstrating its effectiveness through simulations.

Findings

Mechanism reduces bid prices for permits.

Increases total permits sold.

Enhances pollution control efficiency.

Abstract

In the context of increasingly complex environmental challenges, effective pollution control mechanisms are crucial. By extending the state of the art auction mechanisms, we aim to develop an efficient approach for allocating pollution abatement resources in a multi-pollutant setting with pollutants affecting each other's reduction costs. We modify the Combinatorial Multi-Round Ascending Auction for the auction of escape permits of pollutants with co-dependent reduction processes, specifically, greenhouse gas emissions and nutrient runoff in Finnish agriculture. We show the significant advantages of this mechanism in pollution control through experiments on the bid prices and amount of escape permits sold in multiple auction simulations.