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Environmental Policy and Speculation on Markets for Emission Permits

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  • PAOLO COLLA
  • MARC GERMAIN
  • VINCENT Van STEENBERGHE

Abstract

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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  • PAOLO COLLA & MARC GERMAIN & VINCENT Van STEENBERGHE, 2012. "Environmental Policy and Speculation on Markets for Emission Permits," Economica, London School of Economics and Political Science, vol. 79(313), pages 152-182, January.
    • Handle: RePEc:bla:econom:v:79:y:2012:i:313:p:152-182
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    Cited by:

    1. Cretí, Anna & Joëts, Marc, 2017. "Multiple bubbles in the European Union Emission Trading Scheme," Energy Policy, Elsevier, vol. 107(C), pages 119-130.
    2. Cyril Monnet & Ted Temzelides, 2016. "Monetary emissions trading mechanisms," International Journal of Economic Theory, The International Society for Economic Theory, vol. 12(1), pages 85-100, March.
    3. repec:ceu:econwp:2012_5 is not listed on IDEAS
    4. Baran Doda & Simon Quemin & Luca Taschini, 2017. "A Theory of Gains from Trade in Multilaterally Linked ETSs," Working Papers 1706, Chaire Economie du climat.
    5. Bárcena-Ruiz, Juan Carlos & Sagasta, Amagoia, 2021. "Environmental policies with consumer-friendly firms and cross-ownership," Economic Modelling, Elsevier, vol. 103(C).
    6. Anne Schopp & Karsten Neuhoff, 2013. "The Role of Hedging in Carbon Markets," Discussion Papers of DIW Berlin 1271, DIW Berlin, German Institute for Economic Research.
    7. Pauli Lappi, 2017. "Too many traders? On the welfare ranking of prices and quantities," Economics Bulletin, AccessEcon, vol. 37(3), pages 1959-1965.
    8. Havrland, Bohumil & Satyakti, Yayan, 2011. "The Impact of Biofuels Policy on Trade and Food Security in Developing Countries," Conference papers 332087, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Rupayan Pal & Bibhas Saha, 2014. "Mixed Duopoly and Environment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(1), pages 96-118, February.
    10. Simon Quemin, 2016. "Intertemporal abatement decisions under ambiguity aversion in a cap and trade," Working Papers 1604, Chaire Economie du climat.
    11. Rannou, Yves, 2019. "Limit order books, uninformed traders and commodity derivatives: Insights from the European carbon futures," Economic Modelling, Elsevier, vol. 81(C), pages 387-410.
    12. Tietjen, Oliver & Lessmann, Kai & Pahle, Michael, 2021. "Hedging and temporal permit issuances in cap-and-trade programs: The Market Stability Reserve under risk aversion," Resource and Energy Economics, Elsevier, vol. 63(C).
    13. Corina Haita-Falah, 2016. "Uncertainty and speculators in an auction for emissions permits," Journal of Regulatory Economics, Springer, vol. 49(3), pages 315-343, June.
    14. Rupayan Pal & Bibhas Saha, 2011. "Environmental outcomes in a model of mixed duopoly," University of East Anglia Applied and Financial Economics Working Paper Series 030, School of Economics, University of East Anglia, Norwich, UK..
    15. Silvia Albrizio & Helia Costa, 2012. "Policy Uncertainty and Investment in Low-Carbon Technology," Economics Working Papers ECO2012/27, European University Institute.

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