Cap-and-Trade Properties under Different Scheme Designs
AbstractThis paper examines the key design mechanisms of existing and proposed cap-and-trade markets. First, it is shown that the hybrid systems under investigation (safety-valve with offsets, price floor using a subsidy, price collar, allowance reserve, and options offered by the regulator) can be decomposed into a combination of an ordinary cap-and-trade scheme with European- or American-style call and put options. Then, we quantify and discuss the advantages and disadvantages of the proposed hybrid schemes by investigating whether pre-set objectives (enforcement of permit price bounds and reduction of potential costs for relevant companies) can be accomplished while maintaining the original environmental targets.
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Bibliographic InfoPaper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0919.
Date of creation: Nov 2009
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This paper has been announced in the following NEP Reports:
- NEP-AGR-2010-02-27 (Agricultural Economics)
- NEP-ALL-2010-02-27 (All new papers)
- NEP-ENE-2010-02-27 (Energy Economics)
- NEP-ENV-2010-02-27 (Environmental Economics)
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