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Intertemporal Emissions Trading and Allocation Rules: Gainers, Losers and the Spectre of Market Power

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  • Julien Chevallier

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

Stemming from politically given market imperfections in a tradable permits system, this paper develops a Stackelberg game with two types of non-cooperative agents to describe how a large -potentially dominant- agent may exercise market power at the expense of a competitive fringe. In a dynamic framework with full forward and backward temporal flexibility (i.e. 1:1 Intertemporal Trading Ratio), this intra-industry model then suggests an optimal allocation criterion for grandfathered permits based on recent emissions. This paper contributes to the permit trading literature by shedding some light on the decision to allow banking and borrowing, a debate which is typically overlooked by the debate to introduce the permits market itself among other environmental regulation tools. Provisional results are presented under perfect information.

Suggested Citation

  • Julien Chevallier, 2009. "Intertemporal Emissions Trading and Allocation Rules: Gainers, Losers and the Spectre of Market Power," Working Papers halshs-00124713, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00124713
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00124713v1
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    References listed on IDEAS

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