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Uncertainty and speculators in an auction for emissions permits

Author

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  • Corina Haita-Falah

    (University of Kassel)

Abstract

Auctions have become popular as means of allocating emissions permits in the emissions trading schemes developed around the world. Mostly, only a subset of the regulated polluters participate in these auctions along with speculators, creating a market with relatively few participants and, thus, incentive for strategic bidding. I characterize the bidding behavior of the polluters and the speculators, examining the effect of the latter on the profits of the former and on the auction outcome. It turns out that in addition to bidding for compliance, polluters also bid for speculation in the aftermarket. While the presence of the speculators forces the polluters to bid closer to their true valuations, it also creates a trade-off between increasing the revenue accrued to the regulator and reducing the profits of the auction-participating polluters. Nevertheless, the profits of the latter increase in the speculators’ risk aversion.

Suggested Citation

  • Corina Haita-Falah, 2016. "Uncertainty and speculators in an auction for emissions permits," Journal of Regulatory Economics, Springer, vol. 49(3), pages 315-343, June.
  • Handle: RePEc:kap:regeco:v:49:y:2016:i:3:d:10.1007_s11149-016-9299-1
    DOI: 10.1007/s11149-016-9299-1
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    2. Hartvig, Áron Dénes & Pap, Áron & Pálos, Péter, 2023. "EU Climate Change News Index: Forecasting EU ETS prices with online news," Finance Research Letters, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Cap-and-trade program; Emissions trading; Risk aversion; Speculators; Uniform-price auction;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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