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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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    Citations

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    Cited by:

    1. Congjia Huo & Lingming Chen, 2022. "The Impact of the Income Gap on Carbon Emissions: Evidence from China," Energies, MDPI, vol. 15(10), pages 1-22, May.
    2. Carratù, Maria & Chiarini, Bruno & Piselli, Paolo, 2020. "Effects of European emission unit allowance auctions on corporate profitability," Energy Policy, Elsevier, vol. 144(C).

    More about this item

    Keywords

    emissions trading; financial markets; uncertainty; environmental policy;
    All these keywords.

    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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