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Dominant Agent and Intertemporal Emissions Trading

Author

Listed:
  • Hagem, Cathrine

    (Dept. of Economics, University of Oslo)

  • Westskog, Hege

    (CICERO, Center for International Climate and Environmental Research,)

Abstract

In this paper we analyze how restricting intertemporal trading by prohibiting borrowing of emission permits affects the ability of a dominant agent to exploit its market power, and the consequences this has for the cost-effectiveness of implementing an emissions target. We show that the monopolist could take advantage of the constraint on borrowing by distributing the sale of permits ineffectively across periods, and moreover that this inefficiency is influenced by the way permits are initially allocated between agents. A cost-effective distribution of abatement across periods can be achieved by an appropriate distribution of the total endowments of permits over time for each agent.

Suggested Citation

  • Hagem, Cathrine & Westskog, Hege, 2005. "Dominant Agent and Intertemporal Emissions Trading," Memorandum 04/2005, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2005_004
    as

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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2005/Memo-04-2005.pdf
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    References listed on IDEAS

    as
    1. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
    2. Hege Westskog, 1996. "Market Power in a System of Tradeable CO2 Quotas," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 85-103.
    3. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-875, September.
    4. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-661, September.
    5. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    pollution permits; intertemporal trading; market power; borrowing constraint;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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