Abstract:The mechanism design of competitive bidding in emission permits market is an important problem that needs urgently to be settled in the reform of environmental system presently. This paper describe the problem that corporations how to choosing the optimal pollution abatement and output, and design an incentive compatible double auction mechanism. On the basis of the description for the rule of competitive bidding, the clearing rule and transaction rule according with the characters of emission permits market were given. This auction mechanism not only ensured real-time clearing of emission permits market, and induced corporation to reveal their true marginal cost, but also made the corporation that low pollution treatment cost treat with more pollution, minimize society emission abatement cost. The example results showed the efficiency and applicability of the proposed mechanism.