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A Note on Speculation, Emissions Trading and Environmental Protection

Author

Listed:
  • Laura Castellucci

    () (University of Rome “Tor Vergata”)

  • Alessio D’Amato

    () (University of Rome “Tor Vergata”)

Abstract

This paper addresses the role speculation may play in environmental protection under emissions trading. We build a two period model with n firms and a representative speculator, and compare a benchmark case with no speculation with one where speculation takes place under environmental policy uncertainty. We find that, when a stricter environmental policy is expected in the second period, speculation generates both a higher permits price and a better environmental quality in the first period. Further, when a decrease in future policy strictness is expected, an increase in first period environmental quality may follow. Speculation may therefore help accelerate the speed of environmental improvement.

Suggested Citation

  • Laura Castellucci & Alessio D’Amato, 2009. "A Note on Speculation, Emissions Trading and Environmental Protection," Rivista di Politica Economica, SIPI Spa, vol. 99(2), pages 127-144, April-Jun.
  • Handle: RePEc:rpo:ripoec:v:99:y:2009:i:2:p:127-144
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    References listed on IDEAS

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    1. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    2. Drechsler, Laszlo, 1973. "Weighting of Index Numbers in Multilateral International Comparisons," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 19(1), pages 17-34, March.
    3. Declich Carlo & Polin Veronica, 2005. "Povertà assoluta e costo della vita: un'analisi empirica sulle famiglie italiane," Politica economica, Società editrice il Mulino, issue 2, pages 265-306.
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    5. Riccardo Massari & M. Grazia Pittau & Roberto Zelli, 2010. "Does regional cost-of-living reshuffle Italian income distribution?," Working Papers 166, ECINEQ, Society for the Study of Economic Inequality.
    6. Manuela Nenna, 2002. "Deviations from Purchasing Power Parity: Any Role for the Harrod-Balassa-Samuelson Hypothesis?," Rivista di Politica Economica, SIPI Spa, vol. 92(4), pages 167-196, July-Augu.
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    More about this item

    Keywords

    emissions trading; financial markets; uncertainty; environmental policy;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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