Implications of Alternative Emission Trading Plans: Experimental Evidence
AbstractTwo approaches to emissions trading are cap-and-trade, in which an aggregate cap on emissions is distributed in the form of emission allowances and baseline-and-credit, in which firms earn emission reduction credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. To test this prediction we have developed a computerized environment in which subjects representing firms can adjust both their emission rates (per unit output) and capacity levels. Subjects buy or sell emission rights (allowances or credits) in a sealed bid call auction. The demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. This environment is to be used to compare short and long run responses to the alternative trading methods. Initial experiments in this environment will alternately hold emission rate and capacity choice constant. We report on six experimental sessions with variable emissions rates but fixed capacity and two pilot sessions with variable capacity but fixed emission rates.
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Bibliographic InfoPaper provided by McMaster University in its series Department of Economics Working Papers with number 2004-07.
Length: 32 pages
Date of creation: Jul 2004
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- NeilJ. Buckley & Stuart Mestelman & R.Andrew Muller, 2006. "Implications Of Alternative Emission Trading Plans: Experimental Evidence," Pacific Economic Review, Wiley Blackwell, vol. 11(2), pages 149-166, 06.
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
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