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Emissions Trading with Profit-Neutral Permit Allocations

  • Cameron Hepburn
  • John Quah
  • Robert A. Ritz

This paper examines the operation of an emissions trading scheme (ETS) in a Cournot oligopoly.� We study the impact of the ETS on industry output, price, costs, emissions, and profits.� In particular, we develop formulae for the number of emissions permits that have to be freely allocated to firms in order to neutralize any adverse impact the ETS may have on profits.� These formulae tell us that the profit impact of the ETS is usually limited.� Indeed, under quite general conditions, industry profits are preserved so long as firms are freely allocated a fraction of their total demand for permits, with this fraction being lower than the industry's Herfindahl index.

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File URL: http://www.nuff.ox.ac.uk/economics/papers/2008/w12/HQR2-8.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2008-W12.

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Date of creation: 01 Oct 2008
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Handle: RePEc:oxf:wpaper:2008-w12
Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
Web page: http://www.economics.ox.ac.uk/
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  28. repec:cup:cbooks:9780521011143 is not listed on IDEAS
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