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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)

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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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File URL: http://www.cepe.ethz.ch/publications/workingPapers/CEPE_WP62.pdf
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Publisher Info
Paper provided by CEPE Center for Energy Policy and Economics, ETH Zürich 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;

Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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