Page 34 - CATALOG RMIC

Air Pollution Modelling Using Mechanism norimah@fpe.upsi.edu.my
Design Approach LY2015002064

Dr. Norimah Rambeli @ Ramli Assoc Prof Dr. Noor Al-Huda Abdul Karim
Dr. Norasibah Abdul Jalil Dr. Fatimah Salwa Abd. Hadi Dr. Anuar Sarun
Nurhanie Mahjom Asmawi Hashim Emilda Hashin

Carbon Permit Auction model for Malaysia by using ascending auction method. An auction can be defined as
one way of selling an object to potential users with private values. An auction is a superrior method compares to
grandfathering method. This method can allocate the permit according to who values carbon permit the most.
The Carbon Method, also known as Emission Tranding, is an administrative approach used to control pollution.
The market provides economic incentivesfor achieving reductionsin the emissions of pollutants. These incentives
are sometimes called “cap and trade” or “limit and trade”. Hence, it is vital to model the mechanism design of
carbon permit auction due to its strong relation between carbon permit allocation and carbon pollution.
Therefore, in the mechanism design modelling stage, this research seeks the best way for the agency to
encourage all firms in revealing their true type of carbon permit allowance. Point being, the success or failure of
the mechanism crucially depends on firm’s revelations of carbon permit. Technically, the agency of each country
only reports an aggregate carbon permit allowance needed for its country to the international body. Then, the
international body will conduct the auction. In order to achieve the target on reducing carbon permit emission,
the allocation provided will be less than the allowance allocated by the international body. The question on how
encourage each firm to reveal there valution is a crucial part. However, this model suggests the best way in term

of designing the mechanism for homogenous carbon permit auction.

UPSI R & D Product 26