Abstract: Using auction to distribute pollution permits can not only internalize exterior problem of environmental pollution, but also adjust the contorted market price. A bilateral cost information asymmetry auction model is built to study the optimal auction mechanism, and the influence of related parameters on the optimal auction mechanism is further discussed. The results show that, the optimal auction mechanism is mixed auction mechanism. When the risk appetite exceeds a certain threshold, the hidden demand effectdominates, as the risk appetite increases, revenue and price volatility increase; when the risk appetite is smaller than a certain threshold, the competition effect dominates, as the risk appetite decreases, revenue and price volatility decrease. When the number of participants is small, hidden demand effect dominates, as the price impact coefficient increases, revenue increase under mixed auction; when the number of participants is large, competition effect dominates, as the price impact coefficient increases, revenue under mixed auctionpresent the inverted U type. As the price impact coefficient increases, the price volatility under mixed auction presents the inverted U type. Theoretical guidance is proviede for emissionpermits auction mechanism design.

Key words: emission trading, auction, information asymmetry, abatement cost