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A Note on Market Power in an Emission Permits Market with Banking

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  • Matti Liski
  • Juan Pablo Montero

    () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

In this paper, we investigate the effect of market power on the equilibrium path of an emission permits market in which firms can bank current permits for use in later periods. In particular, we study the market equilibrium for a large (potentially dominant) firm and a competitive fringe with rational expectations. Rather than providing a full description of the equilibrium solution for all combinations of permits allocations and cost structures, we provide a characterization of the equilibrium solution for a few illustrative cases. For example, we find that if the large firm enjoys a dominant position in the after-banking market, it can always extend this dominant position to the market during the banking period regardless of the allocation of the stock (bank) of permits.

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Bibliographic Info

Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 236.

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Date of creation: 2003
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Publication status: Published as "A Note on Market Power in an Emission Permits Market with Banking", Environmental and Resource Economics 31, 159-173, 2005.
Handle: RePEc:ioe:doctra:236

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References

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  1. Hahn, Robert W., 1982. "Market Power and Transferable Property Rights," Working Papers 402, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Newbery, David M G, 1981. "Oil Prices, Cartels, and the Problem of Dynamic Inconsistency," Economic Journal, Royal Economic Society, vol. 91(363), pages 617-46, September.
  3. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894.
    • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839.
  4. Richard J. Gilbert, 1978. "Dominant Firm Pricing Policy in a Market for an Exhaustible Resource," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 385-395, Autumn.
  5. Juan Pablo Montero, 2002. "The Temporal Efficiency of SO2 Emissions Trading," Documentos de Trabajo 225, Instituto de Economia. Pontificia Universidad Católica de Chile..
  6. 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. Matti Liski & Juan-Pablo Montero, 2005. "Market power in a storable-good market - Theory and applications to carbon and sulfur trading," Working Papers 0516, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  2. Bosetti, Valentina & Carraro, Carlo & Massetti, Emanuele, 2009. "Banking permits: Economic efficiency and distributional effects," Journal of Policy Modeling, Elsevier, vol. 31(3), pages 382-403, May.
  3. Chevallier, Julien, 2008. "Strategic manipulation on Emissions Trading Banking Program with fixed horizon," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/4213, Université Paris-Dauphine.
  4. Jacob K. Goeree & Charles A. Holt & Karen Palmer & William Shobe & Dallas Burtraw, 2010. "An Experimental Study of Auctions Versus Grandfathering to Assign Pollution Permits," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 514-525, 04-05.
  5. Olivier Rousse & Benoît Sévi, 2005. "Behavioral Heterogeneity in the US Sulfur Dioxide Emissions Allowance Trading Program," ERSA conference papers ersa05p550, European Regional Science Association.
  6. Antelo, Manel & Bru, Lluís, 2009. "Permit markets, market power, and the trade-off between efficiency and revenue raising," Resource and Energy Economics, Elsevier, vol. 31(4), pages 320-333, November.
  7. Beat Hintermann, 2011. "Market Power, Permit Allocation and Efficiency in Emission Permit Markets," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(3), pages 327-349, July.
  8. 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.
  9. Cathrine Hagem & Hege Westskog, 2008. "Intertemporal Emission Trading with a Dominant Agent: How does a Restriction on Borrowing Affect Efficiency?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(2), pages 217-232, June.
  10. Julien Chevallier, 2009. "Intertemporal Emissions Trading and Allocation Rules: Gainers, Losers and the Spectre of Market Power," Working Papers halshs-00124713, HAL.
  11. repec:mop:credwp:06.02.63 is not listed on IDEAS
  12. Julien Chevallier, 2009. "Intertemporal Emissions Trading and Market Power: A Dominant Firm with Competitive Fringe Model," Working Papers halshs-00388207, HAL.

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