IDEAS home Printed from https://ideas.repec.org/a/uwp/landec/v88y2012iii1p561-570.html
   My bibliography  Save this article

Hedging in Coal Contracts under the Acid Rain Program

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://le.uwpress.org/cgi/reprint/88/3/561
    Download Restriction: A subscripton is required to access pdf files. Pay per article is available.
    ---><---

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

    References listed on IDEAS

    as
    1. Joskow, Paul L, 1985. "Vertical Integration and Long-term Contracts: The Case of Coal-burning Electric Generating Plants," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 33-80, Spring.
    2. Douglas J. Lober & Michael Bailey, 1997. "Organizational strategy, managerial decision-making, and market-based environmental policies: utility company bidding behavior in the sulfur dioxide allowance trading auctions," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(6), pages 471-489.
    3. Maria Kozhevnikova & Ian Lange, 2009. "Determinants of Contract Duration: Further Evidence from Coal-Fired Power Plants," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(3), pages 217-229, May.
    4. Masten, Scott E & Crocker, Keith J, 1985. "Efficient Adaptation in Long-term Contracts: Take-or-Pay Provisions for Natural Gas," American Economic Review, American Economic Association, vol. 75(5), pages 1083-1093, December.
    5. Keith J. Crocker & Scott E. Masten, 1988. "Mitigating Contractual Hazards: Unilateral Options and Contract Length," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 327-343, Autumn.
    6. Meghan R. Busse & Nathaniel O. Keohane, 2007. "Market effects of environmental regulation: coal, railroads, and the 1990 Clean Air Act," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1159-1179, December.
    7. Plümper, Thomas & Troeger, Vera E., 2007. "Efficient Estimation of Time-Invariant and Rarely Changing Variables in Finite Sample Panel Analyses with Unit Fixed Effects," Political Analysis, Cambridge University Press, vol. 15(2), pages 124-139, April.
    8. Lange Ian & Bellas Allen S, 2007. "The 1990 Clean Air Act and the Implicit Price of Sulfur in Coal," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-25, August.
    9. Shaul Ben-David & David Brookshire & Stuart Burness & Michael McKee & Christian Schmidt, 2000. "Attitudes toward Risk and Compliance in Emission Permit Markets," Land Economics, University of Wisconsin Press, vol. 76(4), pages 590-600.
    10. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    11. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, October.
      • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kosnik, Lea & Lange, Ian, 2011. "Contract renegotiation and rent re-distribution: Who gets raked over the coals?," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 155-165, September.
    2. Di Maria, Corrado & Lange, Ian & van der Werf, Edwin, 2014. "Should we be worried about the green paradox? Announcement effects of the Acid Rain Program," European Economic Review, Elsevier, vol. 69(C), pages 143-162.
    3. Lange, Ian, 2008. "Contract Parameters' Impacts on Coal Prices," Stirling Economics Discussion Papers 2008-26, University of Stirling, Division of Economics.
    4. Hauteclocque, Adrien de & Glachant, Jean-Michel, 2009. "Long-term energy supply contracts in European competition policy: Fuzzy not crazy," Energy Policy, Elsevier, vol. 37(12), pages 5399-5407, December.
    5. repec:bla:jomstd:v:47:y:2010:i:s1:p:859-883 is not listed on IDEAS
    6. Stéphane Saussier, 1998. "La durée des contrats interentreprises : une analyse empirique," Économie et Prévision, Programme National Persée, vol. 135(4), pages 137-146.
    7. Christian Hirschhausen & Anne Neumann, 2008. "Long-Term Contracts and Asset Specificity Revisited: An Empirical Analysis of Producer–Importer Relations in the Natural Gas Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 32(2), pages 131-143, March.
    8. Nicholas S. Argyres & Janet Bercovitz & Kyle J. Mayer, 2007. "Complementarity and Evolution of Contractual Provisions: An Empirical Study of IT Services Contracts," Organization Science, INFORMS, vol. 18(1), pages 3-19, February.
    9. Joseph C. Mullin & Wallace P. Mullin, 1996. "United States Steel's Acquisition of the Great Northern Ore Properties: Vertical Foreclosure or Efficient Contractual Governance?," NBER Working Papers 5662, National Bureau of Economic Research, Inc.
    10. Chi-Kong Chyong, 2015. "Markets and long-term contracts: The case of Russian gas supplies to Europe," Cambridge Working Papers in Economics 1542, Faculty of Economics, University of Cambridge.
    11. López-Bayón, Susana & González-Díaz, Manuel, 2010. "Indefinite contract duration: Evidence from electronics subcontracting," International Review of Law and Economics, Elsevier, vol. 30(2), pages 145-159, June.
    12. Costello, Anna M., 2013. "Mitigating incentive conflicts in inter-firm relationships: Evidence from long-term supply contracts," Journal of Accounting and Economics, Elsevier, vol. 56(1), pages 19-39.
    13. Matthew Doyle & Ian Lange, 2016. "Natural Gas Contract Decisions for Electric Power," Working Papers 2016-05, Colorado School of Mines, Division of Economics and Business.
    14. Chi Kong Chyong, 2019. "European Natural Gas Markets: Taking Stock and Looking Forward," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(1), pages 89-109, August.
    15. Thomas N. Hubbard, 1999. "How Wide is the Scope of Hold-Up-Based Theories? Contractual Form and Market Thickness in Trucking," NBER Working Papers 7347, National Bureau of Economic Research, Inc.
    16. Alex Eapen & Rekha Krishnan, 2019. "Transferring Tacit Know-How: Do Opportunism Safeguards Matter for Firm Boundary Decisions?," Organization Science, INFORMS, vol. 30(4), pages 715-734, July.
    17. Fan, Joseph P. H., 2000. "Price uncertainty and vertical integration: an examination of petrochemical firms," Journal of Corporate Finance, Elsevier, vol. 6(4), pages 345-376, December.
    18. Adrien de Hauteclocque & Jean-Michel Glachant, 2011. "Long-term Contracts and Competition Policy in European Energy Markets," Chapters, in: Jean-Michel Glachant & Dominique Finon & Adrien de Hauteclocque (ed.), Competition, Contracts and Electricity Markets, chapter 9, Edward Elgar Publishing.
    19. Glachant, Jean-Michel & Hallack, Michelle, 2009. "Take-or-pay contract robustness: A three step story told by the Brazil-Bolivia gas case?," Energy Policy, Elsevier, vol. 37(2), pages 651-657, February.
    20. Pierre-André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory : A Survey of Some Recent Work," Working Papers 2002-11, Center for Research in Economics and Statistics.
    21. Marian Moszoro & Pablo T. Spiller & Sebastian Stolorz, 2016. "Rigidity of Public Contracts," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 13(3), pages 396-427, September.

    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

    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:uwp:landec:v:88:y:2012:iii:1:p:561-570. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: the person in charge (email available below). General contact details of provider: http://le.uwpress.org/ .

    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.