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Impacts of ETS allocation rules on abatement investment and market structure

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  • Yoon, Kyoung-Soo
  • Oh, Hyungna

Abstract

We examine the influence of carbon permit allocation rules on market structure in a Cournot duopoly market. This study demonstrates that the benchmark allocation rule is more efficient than grandparenting in terms of abatement investment and market output. Introduction of the emission trading scheme affects market structure towards higher market concentration, regardless of the allocation rule, and benchmarking tends to make the market more concentrated, as larger firms have more efficient abatement technology. Our analytical findings support the point that the benchmark allocation rule should be widely adopted from the perspective of improving the efficiency of greenhouse gas reduction. At the same time, we have also raised a concern that the market structure will move in an unfavorable direction towards to smaller firms.

Suggested Citation

  • Yoon, Kyoung-Soo & Oh, Hyungna, 2021. "Impacts of ETS allocation rules on abatement investment and market structure," Energy Economics, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:eneeco:v:101:y:2021:i:c:s0140988321003005
    DOI: 10.1016/j.eneco.2021.105402
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    Cited by:

    1. Wang, M. & Zhou, P., 2022. "A two-step auction-refund allocation rule of CO2 emission permits," Energy Economics, Elsevier, vol. 113(C).
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    3. Wei, Yu & Zhang, Jiahao & Bai, Lan & Wang, Yizhi, 2023. "Connectedness among El Niño-Southern Oscillation, carbon emission allowance, crude oil and renewable energy stock markets: Time- and frequency-domain evidence based on TVP-VAR model," Renewable Energy, Elsevier, vol. 202(C), pages 289-309.

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    More about this item

    Keywords

    Allocation rules; Grandparenting; Benchmarking; Abatement investment; Market structure;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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