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Sensitivity Analysis of emissions Markets: A Discrete-Time Radner Equilibrium Approach

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  • St'ephane Cr'epey
  • Mekonnen Tadese
  • Gauthier Vermandel

Abstract

Emissions markets play a crucial role in reducing pollution by encouraging firms to minimize costs. However, their structure heavily relies on the decisions of policymakers, on the future economic activities, and on the availability of abatement technologies. This study examines how changes in regulatory standards, firms' abatement costs, and emissions levels affect allowance prices and firms' efforts to reduce emissions. This is done in a Radner equilibrium framework encompassing inter-temporal decision-making, uncertainty, and a comprehensive assessment of the market dynamics and outcomes. The results of this research have the potential to assist policymakers in enhancing the structure and efficiency of emissions trading systems, through an in-depth comprehension of the reactions of market stakeholders towards different market situations.

Suggested Citation

  • St'ephane Cr'epey & Mekonnen Tadese & Gauthier Vermandel, 2024. "Sensitivity Analysis of emissions Markets: A Discrete-Time Radner Equilibrium Approach," Papers 2411.06185, arXiv.org.
    • Handle: RePEc:arx:papers:2411.06185
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    References listed on IDEAS

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