Incentives and prices in an emissions trading scheme with updating
AbstractEmissions trading schemes where allocations are based on updated baseline emissions give firms less incentive to reduce emissions for a given quota (or allowance) price. Nevertheless, according to Böhringer and Lange [On the design of optimal grandfathering schemes for emission allowances, Europ. Econ. Rev. 49 (2005) 2041-2055], such allocation schemes are cost-effective if the system is closed and allocation rules are identical across firms. In this paper, we show that the cost-effective solution may be infeasible if marginal abatement costs grow too fast. Moreover, if a price cap or banking/borrowing is introduced, the abatement profile is no longer the same as in the case with an auction (or lump-sum allocation). In addition, we show that with allocation based on updated emissions, the quota price will always exceed marginal abatement costs, possibly misguiding policy makers and investors about abatement costs. Numerical simulations indicate that the quota price most likely will be several times higher than marginal abatement costs, unless a significant share of allowances is auctioned.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Environmental Economics and Management.
Volume (Year): 56 (2008)
Issue (Month): 1 (July)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622870
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Knut Einar Rosendahl & Jon Strand, 2014.
"Emissions Trading with Offset Markets and Free Quota Allocations,"
CESifo Working Paper Series
4603, CESifo Group Munich.
- Rosendahl, Knut Einar & Strand, Jon, 2012. "Emissions trading with offset markets and free quota allocations," Policy Research Working Paper Series 6281, The World Bank.
- Knut Einar Rosendahl & Jon Strand, 2012. "Emissions trading with offset markets and free quota allocations," Discussion Papers 719, Research Department of Statistics Norway.
- Knut Rosendahl & Halvor Storrøsten, 2011. "Emissions Trading with Updated Allocation: Effects on Entry/Exit and Distribution," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(2), pages 243-261, June.
- Chung, Sung H. & Weaver, Robert D. & Friesz, Terry L., 2012. "Oligopolies in pollution permit markets: A dynamic game approach," International Journal of Production Economics, Elsevier, vol. 140(1), pages 48-56.
- Harstad, Bård & Eskeland, Gunnar S., 2010.
"Trading for the Future: Signaling in Permit Markets,"
2010/2, Department of Business and Management Science, Norwegian School of Economics.
- Harstad, Bård & Eskeland, Gunnar S., 2010. "Trading for the future: Signaling in permit markets," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 749-760, October.
- Bard Harstad & Gunnar S. Eskeland, 2006. "Trading for the Future: Signaling in Permit Markets," Discussion Papers 1429, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Anping Chen & Nicolaas Groenewold, 2012. "The Regional Economic Effects of a Reduction in Carbon Emissions and An Evaluation of Offsetting Policies in China," Economics Discussion / Working Papers 12-14, The University of Western Australia, Department of Economics.
- Benjamin Jones & Michael Keen & Jon Strand, 2013.
"Fiscal implications of climate change,"
International Tax and Public Finance,
Springer, vol. 20(1), pages 29-70, February.
- Rolf Golombek & Sverre A.C. Kittelsen & Knut Einar Rosendahl, 2011.
"Price and welfare effects of emission quota allocation,"
661, Research Department of Statistics Norway.
- Golombek, Rolf & Kittelsen, Sverre A.C. & Rosendahl, Knut Einar, 2013. "Price and welfare effects of emission quota allocation," Energy Economics, Elsevier, vol. 36(C), pages 568-580.
- Joseph E. Aldy & Alan J. Krupnick & Richard G. Newell & Ian W. H. Parry & William A. Pizer, 2010.
"Designing Climate Mitigation Policy,"
Journal of Economic Literature,
American Economic Association, vol. 48(4), pages 903-34, December.
- Joseph E. Aldy & Alan J. Krupnick & Richard G. Newell & Ian W.H. Parry & William A. Pizer, 2009. "Designing Climate Mitigation Policy," NBER Working Papers 15022, National Bureau of Economic Research, Inc.
- Aldy, Joseph E. & Krupnick, Alan J. & Newell, Richard G. & Parry, Ian W.H. & Pizer, William A., 2009. "Designing Climate Mitigation Policy," Discussion Papers dp-08-16, Resources For the Future.
- Tatsuyoshi Miyakoshi & Laixun Zhao, 2012. "Measuring Households' Vulnerability to Idiosyncratic and Covariate Shocks – the case of Bangladesh," Discussion Paper Series DP2012-19, Research Institute for Economics & Business Administration, Kobe University.
- Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2008. "Emissions trading with updated grandfathering. Entry/exit considerations and distributional effects," Discussion Papers 546, Research Department of Statistics Norway.
- Anping Chen & Nicolaas Groenewold, 2013. "Regional Effects in China of an Emissions-Reduction Policy: Tax v. Subsidy," ERSA conference papers ersa13p1275, European Regional Science Association.
- Thomas Eichner & Rüdiger Pethig, 2009. "Taxing and trading carbon emissions in the EU: Distributional comparisons of mixed policies," Volkswirtschaftliche DiskussionsbeitrÃ¤ge 135-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
- Christoph Böhringer & Knut Einar Rosendahl, 2008.
"Strategic Partitioning of Emissions Allowances. Under the EU Emission Trading Scheme,"
538, Research Department of Statistics Norway.
- Böhringer, Christoph & Rosendahl, Knut Einar, 2009. "Strategic partitioning of emission allowances under the EU Emission Trading Scheme," Resource and Energy Economics, Elsevier, vol. 31(3), pages 182-197, August.
- Paul, Anthony & Burtraw, Dallas & Palmer, Karen, 2008. "Compensation for Electricity Consumers Under a U.S. CO2 Emissions Cap," Discussion Papers dp-08-25, Resources For the Future.
- Huang, Wei Ming & Lee, Grace W.M., 2009. "GHG legislation: Lessons from Taiwan," Energy Policy, Elsevier, vol. 37(7), pages 2696-2707, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.