IDEAS home Printed from https://ideas.repec.org/a/ucp/jaerec/doi10.1086-721755.html
   My bibliography  Save this article

Investment Incentives in Tradable Emissions Markets with Price Floors

Author

Listed:
  • Timothy N. Cason
  • John K. Stranlund
  • Frans P. de Vries

Abstract

Concerns about cost containment and price volatility have led regulators to include price controls in many cap-and-trade markets. We study how these controls affect firms’ incentives to invest in the adoption of abatement technologies in a model with abatement cost uncertainty. Price floors increase investment incentives because they raise the expected benefits from lowering abatement costs. We also report a market experiment that features abatement cost uncertainty and the opportunity for cost-reducing investment, with and without a price floor. Consistent with the theoretical model, investment is significantly greater with the price floor in place. Emissions permit prices also respond as predicted to abatement investments and emissions shocks. In particular, prices are only responsive to investment and shocks when the price floor is not implemented.

Suggested Citation

  • Timothy N. Cason & John K. Stranlund & Frans P. de Vries, 2023. "Investment Incentives in Tradable Emissions Markets with Price Floors," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(2), pages 283-314.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/721755
    DOI: 10.1086/721755
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/721755
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: http://dx.doi.org/10.1086/721755
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/721755?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jaerec:doi:10.1086/721755. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JAERE .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.