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Environmental Policy and Speculation on Markets for Emission Permits

  • PAOLO COLLA
  • MARC GERMAIN
  • VINCENT Van STEENBERGHE

Tradable emission permits share many characteristics with financial assets. As on financial markets, speculators are likely to be active on large markets for emission permits such as those developing under the Kyoto Protocol. We show how the presence of speculators on a market for emission permits affects the price of these permits when firms face risk aversion. The agency in charge of the optimal environmental policy should account for the presence of speculators when determining the total amount of permits to issue.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 79 (2012)
Issue (Month): 313 (01)
Pages: 152-182

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Handle: RePEc:bla:econom:v:79:y:2012:i:313:p:152-182
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  1. Stavins, Robert, 2000. "Experience with Market-Based Environmental Policy Instruments," Working Paper Series rwp00-004, Harvard University, John F. Kennedy School of Government.
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