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Carbon sequestration and permit trading on the competitive fringe

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  • Caplan, Arthur J.

Abstract

This paper makes two contributions to the carbon-sequestration policy literature. First and foremost, we develop a theoretical framework in which sequestration and permit-trading markets are analyzed jointly in the context of a competitive fringe model. Our framework formalizes the linkage between regulatory policy changes (as they manifest themselves in the permit market) and subsequent equilibrium allocations in the sequestration market. Second, we perform a numerical analysis demonstrating the role market structure, or market power, might play in the determination of the equilibrium sequestration allocation and carbon price. Both our analytical and numerical results demonstrate the importance of incorporating into empirical supply-side models demand-side information that is reflective of an underlying market structure.

Suggested Citation

  • Caplan, Arthur J., 2011. "Carbon sequestration and permit trading on the competitive fringe," Economic Modelling, Elsevier, vol. 28(6), pages 2803-2810.
  • Handle: RePEc:eee:ecmode:v:28:y:2011:i:6:p:2803-2810
    DOI: 10.1016/j.econmod.2011.08.018
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    References listed on IDEAS

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    1. Asheim, Geir B. & Froyn, Camilla Bretteville & Hovi, Jon & Menz, Fredric C., 2006. "Regional versus global cooperation for climate control," Journal of Environmental Economics and Management, Elsevier, vol. 51(1), pages 93-109, January.
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    More about this item

    Keywords

    Carbon sequestration; Competitive fringe; Abatement credits;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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