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Designing Pollution Market Instruments: Cases Of Uncertainty

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  • DALE A. CARLSON
  • ANNE M. SHOLTZ
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    Abstract

    "This paper examines design alternatives for emissions trading credits and assesses their relative performance given several sources of uncertainty endemic to market-based environmental regulatory programs. Facilities regulated in such programs face significant uncertainty about their total emissions. Uncertainty arises due to changes in production-demand schedules for their product, imperfect knowledge of abatement efficiency, and other informational lags. Depending on the design of the trading credit, this uncertainty can result in significant market price volatility and undesirable increases in peak emissions (in the absence of additional costly market institutions, such as contingent contracts and brokered insurance). In addition to the design alternatives, the paper considers allocation alternatives to alleviate these unintended effects and also discusses the value of properly designed reconciliation markets". Copyright 1994 Western Economic Association International.

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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

    Volume (Year): 12 (1994)
    Issue (Month): 4 (October)
    Pages: 114-125

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    Handle: RePEc:bla:coecpo:v:12:y:1994:i:4:p:114-125

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    Cited by:
    1. Creti, Anna & Villeneuve, Bertrand, 2008. "Equilibrium Storage in a Markov Economy," MPRA Paper 11944, University Library of Munich, Germany.
    2. Chen, C. & Li, Y.P. & Huang, G.H., 2013. "An inexact robust optimization method for supporting carbon dioxide emissions management in regional electric-power systems," Energy Economics, Elsevier, vol. 40(C), pages 441-456.
    3. Hennessy, David A. & Roosen, Jutta, 1999. "Stochastic Pollution, Permits, and Merger Incentives," Journal of Environmental Economics and Management, Elsevier, vol. 37(3), pages 211-232, May.
    4. Stephen P. Holland & Michael R. Moore, 2012. "When to Pollute, When to Abate? Intertemporal Permit Use in the Los Angeles NOx Market," Land Economics, University of Wisconsin Press, vol. 88(2), pages 275-299.
    5. Stephen P. Holland & Michael R. Moore, 2012. "Market Design in Cap and Trade Programs: Permit Validity and Compliance Timing," NBER Working Papers 18098, National Bureau of Economic Research, Inc.
    6. Villeneuve, Bertrand & Creti, Anna, 2013. "Commodity storage with durable shocks : A simple Markovian model," Economics Papers from University Paris Dauphine 123456789/5384, Paris Dauphine University.
    7. Sovacool, Benjamin K., 2011. "The policy challenges of tradable credits: A critical review of eight markets," Energy Policy, Elsevier, vol. 39(2), pages 575-585, February.

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