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Market Power and Windfall Profits in Emission Permit Markets

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Author Info

  • Beat Hintermann

    ()
    (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

Abstract

Although market power in permit markets has been examined in some detail following the seminal work of Hahn (1984), the effect of free allocation on price manipulation with market power in both output and permit market has not specifically been addressed. I show that in this case, the threshold for free allocation above which dominant firms will increase the permit price is below their emissions. In addition to being of general economic interest, this issue is relevant in the context of the EUETS. I find that European power generators received free allowances in excess of the derived threshold.

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Bibliographic Info

Paper provided by CEPE Center for Energy Policy and Economics, ETH Zurich in its series CEPE Working paper series with number 09-62.

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Length: 34 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:cee:wpcepe:09-62

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Related research

Keywords: Market power; emissions permit markets; air pollution; EU ETS; CO2; electricity generation; permit allocation; windfall profits; cost pass-through;

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Cited by:
  1. Johann Wackerbauer & Jutta Albrecht-Saavedra & Marc Gronwald & Janina Ketterer & Jana Lippelt & Johannes Pfeiffer & Luise Röpke & Markus Zimmer, 2011. "Bewertung der klimapolitischen Maßnahmen und Instrumente: eine Studie im Auftrag der E.ON AG," ifo Forschungsberichte, Ifo Institute for Economic Research at the University of Munich, number 51, June.
  2. Corinne Chaton & Anna Créti & Benoit Peluchon, 2013. "Banking and backloading emission permits," Working Papers hal-00915944, HAL.

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