IDEAS home Printed from https://ideas.repec.org/p/ssb/dispap/213.html
   My bibliography  Save this paper

"EPA's new Emissions Trading Mechanism: A Laboratory Evaluation" - A Comment

Author

Listed:

Abstract

In the US tradable SO2 permit scheme 97.2 per cent of the permits are grandfathered annually to electricity utilities. The remaining 2.8 per cent are withheld and offered for sale at the Environmental Protection Agency (EPA) auction. Also, the electricity utilities may tender permits for sale both at this auction as well as on a complementary permit market. Cason and Plott [3] recommend that the EPA seriously consider reforming the present auction procedure for SO2 permit trading. They provide experimental evidence of downward biased auction prices that understate the marginal cost of emissions control. Our comparison with available empirical data shows that the complementary market for SO2 permits disciplines the auction inasmuch as the auction and market prices are not significantly dissimilar. This fact and the extent of conducted permit trade render improbable the assertion that the EPA auction price differs from the true marginal abatement cost. Hence, the policy relevance of the EPA auction's alleged faults may be negligible.

Suggested Citation

  • Morten G. Søberg, 1998. ""EPA's new Emissions Trading Mechanism: A Laboratory Evaluation" - A Comment," Discussion Papers 213, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:213
    as

    Download full text from publisher

    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp213.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Cason, Timothy N, 1995. "An Experimental Investigation of the Seller Incentives in the EPA's Emission Trading Auction," American Economic Review, American Economic Association, vol. 85(4), pages 905-922, September.
    2. Cason, Timothy N. & Plott, Charles R., 1996. "EPA's New Emissions Trading Mechanism: A Laboratory Evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 133-160, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alt, Marius & Gallier, Carlo & Kesternich, Martin & Sturm, Bodo, 2023. "Collective minimum contributions to counteract the ratchet effect in the voluntary provision of public goods," Journal of Environmental Economics and Management, Elsevier, vol. 122(C).
    2. Murphy, James J. & Stranlund, John K., 2007. "A laboratory investigation of compliance behavior under tradable emissions rights: Implications for targeted enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 196-212, March.
    3. Svendsen, Gert Tinggaard & Christensen, Jan Lien, 1999. "The US SO2 auction: analysis and generalization," Energy Economics, Elsevier, vol. 21(5), pages 403-416, October.
    4. Requate, Till & Camacho-Cuena, Eva & Kean Siang, Ch'ng & Waichman, Israel, 2019. "Tell the truth or not? The montero mechanism for emissions control at work," Journal of Environmental Economics and Management, Elsevier, vol. 95(C), pages 133-152.
    5. Conrad, Klaus & Kohn, Robert E, 1996. "The US market for SO2 permits : Policy implications of the low price and trading volume," Energy Policy, Elsevier, vol. 24(12), pages 1051-1059, December.
    6. Jason F. Shogren, 2002. "Micromotives in Global Environmental Policy," Interfaces, INFORMS, vol. 32(5), pages 47-61, October.
    7. John A. List & Michael K. Price, 2016. "Editor's Choice The Use of Field Experiments in Environmental and Resource Economics," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 10(2), pages 206-225.
    8. Paul L. Joskow & Richard Schmalensee & Elizabeth M. Bailey, 1996. "Auction Design and the Market for Sulfur Dioxide Emissions," NBER Working Papers 5745, National Bureau of Economic Research, Inc.
    9. Olivier Rousse & Benoît Sévi, 2005. "Behavioral Heterogeneity in the US Sulfur Dioxide Emissions Allowance Trading Program," ERSA conference papers ersa05p550, European Regional Science Association.
    10. Roberto Burguet & Bilateral, "undated". "Trade of Permits for Greenhouse Emissions," Working Papers 163, Barcelona School of Economics.
    11. Murphy, James J. & Stranlund, John K., 2006. "Direct and market effects of enforcing emissions trading programs: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 217-233, October.
    12. Murphy, James J. & Stranlund, John K., 2003. "An Experimental Analysis Of Compliance Behavior In Emissions Trading Programs: Some Preliminary Results," 2003 Annual meeting, July 27-30, Montreal, Canada 22039, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. Gary Charness & Kay-Yut Chen, 2002. "Minimum Advertised-Price Policy Rules and Retailer Behavior: An Experiment by Hewlett-Packard," Interfaces, INFORMS, vol. 32(5), pages 62-73, October.
    14. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
    15. Dijkstra, Bouwe R. & Haan, Marco, 2001. "Sellers' Hedging Incentives at EPA's Emission Trading Auction," Journal of Environmental Economics and Management, Elsevier, vol. 41(3), pages 286-294, May.
    16. Hans‐Theo Normann & Roberto Ricciuti, 2009. "Laboratory Experiments For Economic Policy Making," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 407-432, July.
    17. Luca Taschini & Marc Chesney & Mei Wang, 2014. "Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without non-regulated companies," Journal of Regulatory Economics, Springer, vol. 46(1), pages 23-50, August.
    18. Neil J. Buckley & Katherine Cuff & Jeremiah Hurley & Logan McLeod & Robert Nuscheler & David Cameron, 2012. "Willingness-to-pay for parallel private health insurance: evidence from a laboratory experiment," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 137-166, February.
    19. Chesney, Marc & Taschini, Luca & Wang, Mei, 2011. "Regulated and non-regulated companies, technology adoption in experimental markets for emission permits, and options contracts," LSE Research Online Documents on Economics 37577, London School of Economics and Political Science, LSE Library.
    20. Sunnevåg, Kjell J., 2001. "Auction design for the allocation of multiple units of a homogenous good: Theoretical background and practical experience," University of California at Santa Barbara, Economics Working Paper Series qt6wh704p7, Department of Economics, UC Santa Barbara.

    More about this item

    Keywords

    US Clean Air Act Amendments; tradable SO2 permits; experimental economics;
    All these keywords.

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:213. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: L Maasø (email available below). General contact details of provider: https://edirc.repec.org/data/ssbgvno.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.