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Hedging in Coal Contracts under the Acid Rain Program

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  • Ian Lange

Abstract

Tradable permit schemes introduce uncertainty into the cost of regulatory compliance due to the permits’ uncertain price. Regulated firms can hedge this uncertainty through their contracts for fuel procurement. Data on coal contracts are used to estimate how the option not to be delivered higher-sulfur coal is priced. Results show that under a tradable permit scheme, coal prices are reduced for an increase in the sulfur bound controlling for reductions in price due to higher delivered sulfur content.

Suggested Citation

  • Ian Lange, 2012. "Hedging in Coal Contracts under the Acid Rain Program," Land Economics, University of Wisconsin Press, vol. 88(3), pages 561-570.
    • Handle: RePEc:uwp:landec:v:88:y:2012:iii:1:p:561-570
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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