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Emissions Trading with Profit-Neutral Permit Allocations

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Author Info
Cameron Hepburn () (School of Enterprise and the Environment, Oxford University)
John K.-H. Quah () (Department of Economics, Oxford University)
Robert A. Ritz () (Department of Economics, Oxford University)

Additional information is available for the following registered author(s):

Abstract

This paper examines the operation of an emissions trading scheme (ETS) in a Cournot oligopoly. We study the impact of the ETS on industry output, price, costs, emissions, and profits. In particular, we develop formulae for the number of emissions permits that have to be freely allocated to firms in order to neutralize any adverse impact the ETS may have on profits. These formulae tell us that the profit impact of the ETS is usually limited. Indeed, under quite general conditions, industry profits are preserved so long as firms are freely allocated a fraction of their total demand for permits, with this fraction being lower than the industry's Herfindahl index.

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File URL: http://www.nuffield.ox.ac.uk/economics/papers/2008/w12/HQR2-8.pdf
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Publisher Info
Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2008-W12.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 41 pages
Date of creation: 11 Mar 2008
Date of revision:
Handle: RePEc:nuf:econwp:0812

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Web page: http://www.nuff.ox.ac.uk/economics/

For technical questions regarding this item, or to correct its listing, contact: (Maxine Collett).

Related research
Keywords: Emissions trading; permit allocation; profit-neutrality; cost pass-through; abatement; grandfathering;

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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