Investigation of the Effects of Emission Market Design on the Market-Based Compliance Mechanism of the California Cap on Greenhouse Gas Emissions
The state of California has implemented an economy-wide program to regulate its greenhouse gas emissions. A significant share of the emission reductions will be obtained via a cap and trade program with a mix of auctioning and free allocation of allowances. This program has a number of novel design features including, among other things, a price containment reserve, a limit on ownership of allowances, and the forced consignment to auction of some of the share of freely allocated allowances. We use a series of laboratory experiments to test the influence of two of these design features on the performance of the emissions market. We test the effect of holding limits and of the new three-tier price containment sale mechanism. We find that tight holding limits used to prevent market dominance reduce liquidity and appear to harm market efficiency and price discovery. The price containment sale mechanism reduces price spikes during periods of high allowance demand and has different effects on market performance than releasing the price containment reserve as part of the auction of allowances. We discuss the implications for the design of price containment reserves.
|Date of creation:||18 Feb 2013|
|Contact details of provider:|| Postal: 400206 Charlottesville VA 22904|
Web page: http://www.coopercenter.org/econ
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.:
- Robert A. Jarrow, 2008.
"Market Manipulation, Bubbles, Corners, and Short Squeezes,"
World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 6, pages 105-130
World Scientific Publishing Co. Pte. Ltd..
- Jarrow, Robert A., 1992. "Market Manipulation, Bubbles, Corners, and Short Squeezes," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(03), pages 311-336, September.
- Dallas Burtraw & Jacob Goeree & Charles A. Holt & Erica Myers & Karen Palmer & William Shobe, 2009. "Collusion in auctions for emission permits: An experimental analysis," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 28(4), pages 672-691.
- Burtraw, Dallas & Goeree, Jacob & Holt, Charles A. & Myers, Erica & Palmer, Karen & Shobe, William, 2008. "Collusion in Auctions for Emission Permits: An Experimental Analysis," Discussion Papers dp-08-36, Resources For the Future.
- Ellerman,A. Denny & Convery,Frank J. & de Perthuis,Christian, 2010. "Pricing Carbon," Cambridge Books, Cambridge University Press, number 9780521196475, August.
- Shobe, William & Palmer, Karen & Myers, Erica & Holt, Charles & Goeree, Jacob & Burtraw, Dallas, 2010. "An Experimental Analysis of Auctioning Emission Allowances Under a Loose Cap," Agricultural and Resource Economics Review, Cambridge University Press, vol. 39(02), pages 162-175, April.
- Shobe, William & Palmer, Karen L. & Myers, Erica & Holt, Charles & Goeree, Jacob K. & Burtraw, Dallas, 2010. "An Experimental Analysis of Auctioning Emission Allowances Under a Loose Cap," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 39(2), April.
- Shobe, William & Palmer, Karen & Myers, Erica & Holt, Charles & Goeree, Jacob & Burtraw, Dallas, 2006. "An Experimental Analysis of Auctioning Emissions Allowances under a Loose Cap," Discussion Papers dp-09-25, Resources For the Future.
- Jacob K. Goeree & Charles A. Holt & Karen Palmer & William Shobe & Dallas Burtraw, 2010. "An Experimental Study of Auctions Versus Grandfathering to Assign Pollution Permits," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 514-525, 04-05.
- Jacob K. Goeree & Charles A. Holt & Karen Palmer & William Shobe & Dallas Burtraw, 2009. "An experimental study of auctions versus grandfathering to assign pollution permits," IEW - Working Papers 429, Institute for Empirical Research in Economics - University of Zurich.
- Goeree, Jacob K. & Holt, Charles A. & Palmer, Karen & Shobe, William & Burtraw, Dallas, 2009. "An Experimental Study of Auctions Versus Grandfathering to Assign Pollution Permits," Discussion Papers dp-09-39, Resources For the Future.
- Charles A. Holt & William Shobe & Dallas Burtraw & Karen Palmer & Jacob K. Goeree, 2007. "Auction Design for Selling CO2 Emission Allowances Under the Regional Greenhouse Gas Initiative," Reports 2007-03, Center for Economic and Policy Studies.
- Grüll, Georg & Taschini, Luca, 2011. "Cap-and-trade properties under different hybrid scheme designs," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 107-118, January.
- Georg Grüll & Luca Taschini, 2010. "Cap-and-trade properties under different hybrid scheme designs," LSE Research Online Documents on Economics 37597, London School of Economics and Political Science, LSE Library.
- Georg Gr�ll & Luca Taschini, 2010. "Cap-and-trade properties under different hybrid scheme designs," GRI Working Papers 26, Grantham Research Institute on Climate Change and the Environment.
- repec:dau:papers:123456789/2267 is not listed on IDEAS
- Robert N. Stavins, 1998. "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 69-88, Summer.
- repec:dau:papers:123456789/10174 is not listed on IDEAS
- Oliver D. Hart, 1977. "On The Profitability of Speculation," The Quarterly Journal of Economics, Oxford University Press, vol. 91(4), pages 579-597. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:vac:report:rpt13-01. 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: (William M. Shobe)
If references are entirely missing, you can add them using this form.