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Recognizing Gravity as the Strong Force in Atmosphere Emissions Markets

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  • Burtraw, Dallas

    (Resources for the Future)

  • Keyes, Amelia

    (Resources for the Future)

Abstract

Environmental economics has made it possible to estimate prices for air pollution externalities. However, these values are rarely observed in emissions trading markets, as the stringency of these markets is often most dependent on political negotiations, and allowance prices typically fall below the marginal benefits of emissions reductions. Moreover, the political narrative of emissions markets has focused on concern for potential allowance price increases—yet market outcomes show prices persistently remain below expectations and frequently fall over time. Low allowance prices may appear virtuous, but often reflect poor market design that does not anticipate interaction with other policies, and may undermine confidence in market-based approaches to environmental policy. This paper surveys emissions markets and factors influencing prices, and concludes with a discussion of how market design can anticipate and remedy the strong tendency for low prices.

Suggested Citation

  • Burtraw, Dallas & Keyes, Amelia, 2018. "Recognizing Gravity as the Strong Force in Atmosphere Emissions Markets," RFF Working Paper Series 18-16, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-18-16
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    References listed on IDEAS

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    Cited by:

    1. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    2. Barbara Annicchiarico & Stefano Carattini & Carolyn Fischer & Garth Heutel, 2022. "Business Cycles and Environmental Policy: A Primer," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 3(1), pages 221-253.
    3. Quemin, Simon & Trotignon, Raphaël, 2021. "Emissions trading with rolling horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    4. Jae‐Do Song, 2023. "Excessive banking preference in emissions trading," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 448-458, January.
    5. Burtraw, Dallas & Holt, Charles & Palmer, Karen & Shobe, William M., 2020. "Quantities with Prices: Price-Responsive Allowance Supply in Environmental Markets," RFF Working Paper Series 20-17, Resources for the Future.
    6. Timothy N. Cason & John K. Stranlund & Frans P. de Vries, 2022. "Investment Incentives in Tradable Emissions Markets with Price Floors Approach," Purdue University Economics Working Papers 1331, Purdue University, Department of Economics.

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