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

Listed author(s):
  • Luca Taschini

    ()

  • Marc Chesney

    ()

  • Mei Wang

    ()

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

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File URL: http://hdl.handle.net/10.1007/s11149-013-9238-3
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Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 46 (2014)
Issue (Month): 1 (August)
Pages: 23-50

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Handle: RePEc:kap:regeco:v:46:y:2014:i:1:p:23-50
DOI: 10.1007/s11149-013-9238-3
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/industrial+organization/journal/11149/PS2

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