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Sequential game of an emissions trading scheme

Author

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  • Oh, Saesin
  • Kim, Sunjin
  • Ryu, Doojin

Abstract

We examine how the strategic behavior of electric utilities influences a multistage carbon emissions trading market without allowance banking. Using a sequential two-stage game model, we identify key factors that shape trading outcomes over time. In competitive carbon markets with non-excessive allowance allocation, the second-stage price is higher than the first-stage price. Heightened competition induces sales of allowances in the first stage and amplifies their prices in the second stage. Utilities' roles as buyers or sellers depend on the relative scales of the electricity and carbon markets, which mediate the broader effects of competition and technological advancement on strategic trading behavior across stages.

Suggested Citation

  • Oh, Saesin & Kim, Sunjin & Ryu, Doojin, 2025. "Sequential game of an emissions trading scheme," Energy Economics, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:eneeco:v:150:y:2025:i:c:s0140988325006516
    DOI: 10.1016/j.eneco.2025.108824
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    References listed on IDEAS

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    1. Ma, Yunning & Huang, Xuhui & Lee, Hyoungsuk & Choi, Yongrok & Tsai, Fu-Sheng, 2026. "Can the financial scheme of emission trading affect technology development and sustainability?," Research in International Business and Finance, Elsevier, vol. 81(C).

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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