A Note on Speculation, Emissions Trading and Environmental Protection
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.
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Volume (Year): 99 (2009)
Issue (Month): 2 (April-June)
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