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Market power in the market for greenhouse gas emissions permits - the interplay with the fossil fuel markets

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Author Info
Hagem, Cathrine () (Dept. of Economics, University of Oslo)
Mæstad, Ottar () (Institute for Research in Economics and Business Administration (SNF), Bergen)

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Abstract

Implementation of the Kyoto Protocol is likely to leave Russia and other Eastern European countries with market power in the market for emission permits. Ceteris paribus, this will raise the permit price above the competitive permit price. However, Russia is also a large exporter of fossil fuels. A high price on emission permits may lower the producer price on fossil fuels. Thus, if Russia coordinates its permit market and fossil fuel market policies, market power will not necessarily lead to a higher permit price. Fossil fuel producers may also exert market power in the permit market, provided they conceive the permit price to be influenced by their production volumes. If higher volumes drive up the permit price, Russian fuel producers may become more aggressive relative to their competitors in the fuel markets if the sale of fuels is coordinated with the sale of permits. The result is reversed if high fuel production drives the permit price down.

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File URL: http://www.oekonomi.uio.no/memo/memopdf/memo3402.pdf
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Publisher Info
Paper provided by Oslo University, Department of Economics in its series Memorandum with number 34/2002.

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Length: 23 pages
Date of creation: 19 Jun 2003
Date of revision:
Handle: RePEc:hhs:osloec:2002_034

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Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
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Web page: http://www.oekonomi.uio.no/indexe.html
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Related research
Keywords: Climate policy; gas; market power; emission permits;

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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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  1. Christoph Bohringer, 2002. "Climate Politics from Kyoto to Bonn: From Little to Nothing?," The Energy Journal, International Association for Energy Economics, vol. 23(2), pages 51-72.
  2. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 753-65, November. [Downloadable!] (restricted)
    Other versions:
  3. Morch von der Fehr, N-H., 1991. "Tradable Emission Rights and Strategic Interaction," Memorandum 11/1991, Oslo University, Department of Economics.
    Other versions:
  4. Eftichios Sartzetakis, 1997. "Tradeable emission permits regulations in the presence of imperfectly competitive product markets: Welfare implications," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(1), pages 65-81, January. [Downloadable!] (restricted)
  5. Borenstein, Severin, 1988. "On the Efficiency of Competitive Markets for Operating Licenses," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 357-85, May. [Downloadable!] (restricted)
  6. Malueg, David A., 1990. "Welfare consequences of emission credit trading programs," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 66-77, January. [Downloadable!] (restricted)
  7. Misiolek, Walter S. & Elder, Harold W., 1989. "Exclusionary manipulation of markets for pollution rights," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 156-166, March. [Downloadable!] (restricted)
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