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Implications Of Alternative Emission Trading Plans: Experimental Evidence

  • NeilJ. Buckley
  • Stuart Mestelman
  • R.Andrew Muller

Two approaches to emissions trading are cap-and-trade, with an aggregate cap on emissions distributed as emission allowances, and baseline-and-credit, with firms earning emission reduction credits for emissions below baselines. Theory suggests the long-run equilibria of the plans will differ with baselines proportional to output. To test this prediction we develop a computerized environment in which subjects representing firms can adjust their emission rates and capacity levels and trade emission rights in a sealed-bid auction. Demand for output is simulated. We report on six laboratory sessions with variable emissions rates, but fixed capacity: three each with the cap-and-trade and baseline-and-credit mechanisms. Copyright 2006 Blackwell Publishing Ltd

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Article provided by Wiley Blackwell in its journal Pacific Economic Review.

Volume (Year): 11 (2006)
Issue (Month): 2 (06)
Pages: 149-166

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Handle: RePEc:bla:pacecr:v:11:y:2006:i:2:p:149-166
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  1. Neil J. Buckley & R. Andrew Muller & Stuart Mestelman, 2003. "Long-Run Implications of Alternative Emission Trading Plans: An Experiment with Robot Traders," McMaster Experimental Economics Laboratory Publications 2003-03, McMaster University.
  2. Bohm, Peter, 2003. "Experimental evaluations of policy instruments," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 10, pages 437-460 Elsevier.
  3. Neil J. Buckley, 2004. "Short-Run Implications of Cap-and-Trade versus Baseline-and-Credit Emission Trading Plans: Experimental Evidence," Department of Economics Working Papers 2004-05, McMaster University.
  4. Timothy N. Cason & Lata Gangadharan, 2004. "Emissions Variability in Tradable Permit Markets with Imperfect Enforcement and Banking," Department of Economics - Working Papers Series 917, The University of Melbourne.
  5. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
  6. Murphy, James J. & Stranlund, John K., 2006. "Direct and market effects of enforcing emissions trading programs: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 217-233, October.
  7. Neil J. Buckley, 2004. "Short-Run Implications of Cap-and-Trade versus Baseline-and-Credit Emission Trading Plans: Experimental Evidence," McMaster Experimental Economics Laboratory Publications 2004-03, McMaster University.
  8. Stuart Mestelman & Andrew Muller, 1997. "What Have We Learned From Emissions Trading Experiments?," McMaster Experimental Economics Laboratory Publications 1997-03, McMaster University.
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