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Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without non-regulated companies

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  • Luca Taschini

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  • Marc Chesney

    ()

  • Mei Wang

    ()

Abstract

This paper examines the investment strategies of compliance companies in irreversible abatement technologies and the environmental achievements of the system in an inter-temporal cap-and-trade market using laboratory experiments. The experimental analysis is performed under varying market structures: firstly, in a market that is exclusive to compliance companies and subsequently, in a market that is open to both compliance and non-compliance entities. In line with theoretical models on irreversible abatement investment, the paper shows that regulated companies trade permits at a premium. Also, steep per unit penalties for excess emissions prompt early investments in irreversible abatement technologies. Further, the paper shows that by contributing to the permit demand and supply, non-compliance companies (i) enhance the exchange of permits, helping the system to achieve a zero-excess permit position, (ii) increase the price levels, but has no apparent effect on price variability. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Luca Taschini & Marc Chesney & Mei Wang, 2014. "Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without non-regulated companies," Journal of Regulatory Economics, Springer, vol. 46(1), pages 23-50, August.
  • Handle: RePEc:kap:regeco:v:46:y:2014:i:1:p:23-50
    DOI: 10.1007/s11149-013-9238-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Irreversible abatement; Stochastic emissions; Dynamic trading; Participation restrictions; Non-compliance entities; Q50; C02; C91; D40;

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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