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Grandfathering and the endowment effect - An Assessment in the context of the Spanish National Allocation Plan

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  • Mar Reguant
  • A. Denny Ellerman

Abstract

In this paper, we test the Coase theorem in the context of carbon emissions trading. We investigate whether generating firms were influenced in their operational decisions by the initial amount of grandfathered emissions in the trial period of the European Union Emission Trading Scheme (EU-ETS). Theory suggests that under certain assumptions, the initial allocation should not affect production outcomes. We exploit a non-linearity in the allocation rule of CO2 allowances across coal plants in Spain to test for the relevance of the initial allocation to abatement outcomes. The evidence suggests no systematic relationship between the initial endowment and production decisions at the unit level.

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Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0818.

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Date of creation: Nov 2008
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Handle: RePEc:mee:wpaper:0818

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Cited by:
  1. Hahn, Robert W. & Stavins, Robert N., 2010. "The Effect of Allowance Allocations on Cap-and-Trade System Performance," Working Paper Series rwp10-010, Harvard University, John F. Kennedy School of Government.
  2. Ralf Martin & Mirabelle Muûls & Laure B. de Preux & Ulrich J. Wagner, 2012. "Industry compensation under relocation risk: a firm-level analysis of the EU Emissions Trading Scheme," Grantham Research Institute on Climate Change and the Environment Working Papers 85, Grantham Research Institute on Climate Change and the Environment.

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