IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Banking and price containment in the California greenhouse gas emissions market: an experimental analysis of market design

We use a set of economic experiments to test the effects of two key features of California's new program for limiting greenhouse gas emissions. The cap & trade scheme included in the program includes two novel features, limits on allowance ownership (or 'holding limits') and a tiered price containment reserve sale. These program features are linked by their potential to affect liquidity in the market for emission allowances. We examine the effects of these features on liquidity and on measures of market performance including efficiency, price discovery, and price variability. We find that tight holding limits have the effect of substantially lowering the number of banked allowances available for trade, hence lowering liquidity. This impairs the ability of traders to smooth prices over time resulting in lower efficiency, less effective price discovery, and higher variability in price. The price containment reserve, while increasing the supply of allowances available to traders, does not appear to mitigate the effects of tight holding limits on market outcomes. As a result, the imposition of holding limits in the allowance market may have the consequence of increasing the likelihood of the market manipulation that they were intended to prevent.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://econ.ccps.virginia.edu/RePEc_docs/ceps_docs/ab32_banking_7-13.pdf
Download Restriction: no

Paper provided by Center for Economic and Policy Studies in its series Working Papers with number 2013-01.

as
in new window

Length:
Date of creation: 01 Mar 2013
Date of revision:
Handle: RePEc:vac:wpaper:wp13-01
Note: A much revised draft of this working draft will appear in the Journal of Economic Behavior and Organization (2014) under the title: Elements of emission market design: an experimental analysis of California's market for greenhouse gas allowances
Contact details of provider: Postal: P.O. Box 400206
Phone: 14349825376
Fax: 14349825524
Web page: http://www.coopercenter.org/econEmail:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Juan-Pablo Montero, 2009. "Market Power in Pollution Permit Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
  2. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 753-65, November.
  3. Hasegawa, Makoto & Salant, Stephen, 2012. "Cap-and-Trade Programs under Delayed Compliance," Discussion Papers dp-12-32, Resources For the Future.
  4. Juan-Pablo Montero, 2009. "Market Power in Pollution Permit Markets," Working Papers 0906, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  5. Weitzman, Martin L, 1974. "Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 477-91, October.
  6. Tālis J. Putniņš, 2012. "Market Manipulation: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 952-967, December.
  7. Fell, Harrison & Burtraw, Dallas & Morgenstern, Richard D. & Palmer, Karen L., 2012. "Soft and hard price collars in a cap-and-trade system: A comparative analysis," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 183-198.
  8. Stocking, Andrew, 2012. "Unintended consequences of price controls: An application to allowance markets," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 120-136.
  9. 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.
  10. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
  11. Hart, Oliver D, 1977. "On the Profitability of Speculation," The Quarterly Journal of Economics, MIT Press, vol. 91(4), pages 579-97, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:vac:wpaper:wp13-01. 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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.