Market Power with Interdependent Demand: Sale of Emission Permits and Natural Gas from Russia
AbstractWith implementation of the Kyoto Protocol, Russia will most likely be able to exert market power in the emission permit market. But, as Russia is also a big exporter of fossil fuels, the incentives to boost the permit price may be weak. However, a significant share of Russia’s fossil fuel exports is natural gas. If a high permit price boosts the demand for natural gas through substitution from more polluting fuels and thus increase gas profits, this may increase the incentives to exert monopoly power in the permit market. Moreover, a large fossil fuel exporter may use its market position to influence the effective demand for permits. Hence, the relationship between permit income and fossil fuels exports runs in both directions. In this article, we explore the interdependence between the revenues from permit and fossil fuel exports both theoretically and numerically. A computable general equilibrium model suggests the fact that Russia as a big gas exporter has small effect on the incentives to exert monopoly power in the permit market. Moreover, Russia’s monopoly power in the permit market has a small, but non-negligible impact on the optimal level of Russian gas exports. Copyright Springer 2006
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Bibliographic InfoArticle provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.
Volume (Year): 34 (2006)
Issue (Month): 2 (06)
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Web page: http://www.springerlink.com/link.asp?id=100263
climate policy; emission permits; market power; natural gas; Q4; D58; L12; Q28; Q48;
Find related papers by JEL classification:
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
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