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"EPA's new Emissions Trading Mechanism: A Laboratory Evaluation" - A Comment

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Author Info
Morten G. Søberg (Statistics Norway)
Abstract

In the US tradable SO2 permit scheme 97.2 per cent of the permits are grandfathered annually to electricity utilities. The remaining 2.8 per cent are withheld and offered for sale at the Environmental Protection Agency (EPA) auction. Also, the electricity utilities may tender permits for sale both at this auction as well as on a complementary permit market. Cason and Plott [3] recommend that the EPA seriously consider reforming the present auction procedure for SO2 permit trading. They provide experimental evidence of downward biased auction prices that understate the marginal cost of emissions control. Our comparison with available empirical data shows that the complementary market for SO2 permits disciplines the auction inasmuch as the auction and market prices are not significantly dissimilar. This fact and the extent of conducted permit trade render improbable the assertion that the EPA auction price differs from the true marginal abatement cost. Hence, the policy relevance of the EPA auction's alleged faults may be negligible.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 213.

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Date of creation: Jan 1998
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Handle: RePEc:ssb:dispap:213

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Related research
Keywords: US Clean Air Act Amendments; tradable SO2 permits; experimental economics;

Find related papers by JEL classification:
Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

References listed on IDEAS
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  1. Cason, Timothy N, 1995. "An Experimental Investigation of the Seller Incentives in the EPA's Emission Trading Auction," American Economic Review, American Economic Association, vol. 85(4), pages 905-22, September. [Downloadable!] (restricted)
  2. Cason, Timothy N. & Plott, Charles R., 1996. "EPA's New Emissions Trading Mechanism: A Laboratory Evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 133-160, March. [Downloadable!] (restricted)
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