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The Temporal Efficiency of SO2 Emissions Trading

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  • Ellerman, A.D.
  • Juan-Pablo Montero

Abstract

This paper provides an empirical evaluation of the temporal efficiency of the US Acid Rain Program, which implemented a nationwide market for trading and banking sulphur dioxide (SO2) emission allowances. We first develop a model of efficient banking and select appropriate parameter values. Then we use aggregate data from the first seven years of the Acid Rain Program to access the temporal efficiency of the observed banking behaviour. We find that banking has been surprisingly efficient and we discuss why this finding disagrees with the common perception of excessive banking in this program.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0231.

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Length: 26
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:cam:camdae:0231

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Web page: http://www.econ.cam.ac.uk/index.htm

Related research

Keywords: emissions trading; banking; acid rain; tradable permits;

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References

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  1. Rubin, Jonathan D. & Kling, Catherine, 1993. "An Emission Saved is an Emission Earned: An Empirical Study of Emission Banking for Light-Duty Vehicle Manufacturers," University of California Transportation Center, Working Papers qt3rb1472g, University of California Transportation Center.
  2. Margaret E. Slade & Henry Thille, 1997. "Hotelling Confronts CAPM: A Test of the Theory of Exhaustible Resources," Canadian Journal of Economics, Canadian Economics Association, vol. 30(3), pages 685-708, August.
  3. Farrow, Scott, 1985. "Testing the Efficiency of Extraction from a Stock Resource," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 452-87, June.
  4. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
  5. Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-89, March.
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Citations

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Cited by:
  1. Julien Chevallier, 2009. "Intertemporal Emissions Trading and Allocation Rules: Gainers, Losers and the Spectre of Market Power," Working Papers halshs-00124713, HAL.
  2. Kerr, Suzi & Sanchirico, James & Newell, Richard, 2002. "Fishing Quota Markets," Discussion Papers dp-02-20, Resources For the Future.
  3. Li, Shoude, 2013. "Emission permit banking, pollution abatement and production–inventory control of the firm," International Journal of Production Economics, Elsevier, vol. 146(2), pages 679-685.
  4. Schleich, Joachim & Ehrhart, Karl-Martin & Hoppe, Christian & Seifert, Stefan, 2006. "Banning banking in EU emissions trading?," Energy Policy, Elsevier, vol. 34(1), pages 112-120, January.
  5. Emilie Alberola & Julien Chevallier, 2009. "European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007)," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 51-80.
  6. Juan-Pablo Montero, 2004. "Markets for environmental protection: design and performance incomplete enforcement," Estudios de Economia, University of Chile, Department of Economics, vol. 31(1 Year 20), pages 79-99, June.
  7. Li, Shoude & Gu, Mengdi, 2012. "The effect of emission permit trading with banking on firm's production–inventory strategies," International Journal of Production Economics, Elsevier, vol. 137(2), pages 304-308.
  8. Julien Chevallier, 2009. "Intertemporal Emissions Trading and Market Power: A Dominant Firm with Competitive Fringe Model," Working Papers halshs-00388207, HAL.
  9. John Stranlund & Christopher Costello & Carlos Chávez, 2005. "Enforcing Emissions Trading when Emissions Permits are Bankable," Journal of Regulatory Economics, Springer, vol. 28(2), pages 181-204, 09.
  10. Juan-Pablo Montero, 2002. "Testing the Efficiency of a Tradeable Permits Market," Documentos de Trabajo 224, Instituto de Economia. Pontificia Universidad Católica de Chile..
  11. Sebastian Goers & Alexander Wagner & Jürgen Wegmayr, 2010. "New and old market-based instruments for climate change policy," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 12(1), pages 1-30, June.

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