Emissions trading with updated grandfathering. Entry/exit considerations and distributional effects
Allocation of free emissions allowances may distort firms' incentives or have adverse distributional effects. Nevertheless, Böhringer and Lange (2005) show that in a closed emissions trading scheme with a fixed number of firms, a first-best outcome can be achieved if the base year for allocation is continually updated (i.e. updated grandfathering). In this paper we examine whether updated grandfathering alters the entry and exit conditions for firms compared to pure grandfathering, and how the distributional effects are affected. We find that updated grandfathering functions surprisingly similar to pure grandfathering: First, the incentives to entry and exit are identical under the two regimes. Second, the total value of free quotas to existing firms, based on emissions before the system starts, is identical under pure and updated grandfathering. In both cases, higher prices under updated grandfathering exactly match the shorter time period with free allowances. The only difference occurs when there is some combination of auction and pure or updated grandfathering, in which case the total value of free quotas will always be highest under pure grandfathering. Entry and exit incentives are still the same.
|Date of creation:||Jun 2008|
|Date of revision:|
|Contact details of provider:|| Postal: P.O.Box 8131 Dep, N-0033 Oslo, Norway|
Phone: (+47) 21 09 00 00
Fax: +47 - 62 88 55 95
Web page: http://www.ssb.no/en/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ahman, Markus & Burtraw, Dallas & Kruger, Joseph & Zetterberg, Lars, 2007. "A Ten-Year Rule to guide the allocation of EU emission allowances," Energy Policy, Elsevier, vol. 35(3), pages 1718-1730, March.
- Rosendahl, Knut Einar, 2008. "Incentives and prices in an emissions trading scheme with updating," Journal of Environmental Economics and Management, Elsevier, vol. 56(1), pages 69-82, July.
- Karsten Neuhoff & Markus Åhman & Regina Betz & Johanna Cludius & Federico Ferrario & Kristina Holmgren & Gabriella Pal & Michael Grubb & Felix Matthes & Karoline Rogge & Misato Sato & Joachim Schleich, 2006. "Implications of announced phase II national allocation plans for the EU ETS," Climate Policy, Taylor & Francis Journals, vol. 6(4), pages 411-422, July.
- Löschel, Andreas & Lange, Andreas & Hoffmann, Tim & Böhringer, Christoph & Moslener, Ulf, 2004. "Assessing Emission Allocation in Europe: An Interactive Simulation Approach," ZEW Discussion Papers 04-40, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Christoph Bohringer & Tim Hoffmann & Andreas Lange & Andreas Loschel & Ulf Moslener, 2005. "Assessing Emission Regulation in Europe: An Interactive Simulation Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-22.
When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:546. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (L MaasÃ¸)
If references are entirely missing, you can add them using this form.