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A Note on Speculation, Emissions Trading and Environmental Protection

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Author Info

  • Laura Castellucci

    ()
    (University of Rome “Tor Vergata”)

  • Alessio D’Amato

    ()
    (University of Rome “Tor Vergata”)

Abstract

This paper addresses the role speculation may play in environmental protection under emissions trading. We build a two period model with n firms and a representative speculator, and compare a benchmark case with no speculation with one where speculation takes place under environmental policy uncertainty. We find that, when a stricter environmental policy is expected in the second period, speculation generates both a higher permits price and a better environmental quality in the first period. Further, when a decrease in future policy strictness is expected, an increase in first period environmental quality may follow. Speculation may therefore help accelerate the speed of environmental improvement.

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Bibliographic Info

Article provided by SIPI Spa in its journal Rivista di Politica Economica.

Volume (Year): 99 (2009)
Issue (Month): 2 (April-June)
Pages: 127-144

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Handle: RePEc:rpo:ripoec:v:99:y:2009:i:2:p:127-144

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Keywords: emissions trading; financial markets; uncertainty; environmental policy;

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