Alternative Approaches to Cost Containment in a Cap-and-Trade System

Fell, Harrison; Morgenstern, Richard D.

doi:10.1007/s10640-010-9377-2

Cited by 78 publications

(25 citation statements)

References 21 publications

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“…The latter finding is in line with previous studies on hybrid cap-and-trade schemes (Fell, 2015;Fell and Morgenstern, 2010;Stranlund et al, 2014).…”

Section: Introductionsupporting

confidence: 93%

Modelling a Market Stability Reserve in Carbon Markets

et al. 2015

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“…The latter finding is in line with previous studies on hybrid cap-and-trade schemes (Fell, 2015;Fell and Morgenstern, 2010;Stranlund et al, 2014).…”

Section: Introductionsupporting

confidence: 93%

Modelling a Market Stability Reserve in Carbon Markets

et al. 2015

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“…The finding that price collars can actually reduce the variance in emission outcomes compared with a case without collars is a direct contradiction of previous price collar analyses that have not considered offsets (e.g. Philibert 2008;Burtraw, et al 2009;Fell and Morgenstern 2009). The explanation for the potential reduction in cumulative emissions volatility is quite straightforward.…”

Section: Cumulative Emissions and Offsetscontrasting

confidence: 64%

“…As in Fell, et al (2008) and Fell and Morgenstern (2009), we begin by assuming a simple convex abatement cost function at any given period t for the representative firm: …”

Section: Model Setupmentioning

confidence: 99%

Climate Policy Design with Correlated Uncertainties in Offset Supply and Abatement Cost

Fell¹,

Burtraw²,

Morgenstern³

et al. 2012

Land Economics

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H a r r i s o n F e l l , D a l l a s B u r t r a w , R i c h a r d M o r g e n s t e r n , a n d K a r e n P a l m e r DISCUSSION PAPER© 2010 Resources for the Future. All rights reserved. No portion of this paper may be reproduced without permission of the authors.Discussion papers are research materials circulated by their authors for purposes of information and discussion. They have not necessarily undergone formal peer review. Climate Policy Design with Correlated Uncertainties in Offset Supply and Abatement CostHarrison Fell, Dallas Burtraw, Richard Morgenstern, and Karen Palmer AbstractCurrent and proposed greenhouse gas cap-and-trade systems allow regulated entities to offset abatement requirements by paying unregulated entities to abate. These offsets from unregulated entities are believed to contain system costs and stabilize allowance prices. However, the supply of offsets is highly uncertain. Furthermore, the offset supply uncertainty may be correlated with other sources of uncertainty in emissions trading systems. This paper presents a model that incorporates both uncertainties in the supply of offsets and in abatement costs. Using numerical methods we solve the model under a variety of parameter settings, including a system that includes allowance price controls. We find that as uncertainty in offsets and uncertainty in abatement costs become more negatively correlated, expected abatement plus offset purchase costs increase, as does the variability in allowance prices and emissions from the regulated sector. Imposing an allowance price collar that limits the upper and lower cost substantially mitigates cost increases as well as the variability in prices and emissions, while roughly maintaining expected environmental outcomes.

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“…Based on the EC's definition of unused allowances. [Fell and Morgenstern, 2010], [Fell et al, 2012], and [Grüll and Taschini, 2011] demonstrate that such hybrid systems -combination of quantity-and price-based instruments -lower expected control costs.…”

Section: Introductionmentioning

confidence: 97%

The European Union Emissions Trading System and the Market Stability Reserve: Optimal Dynamic Supply Adjustment

Kollenberg

Taschini

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The supply of allowances in the European Union Emissions Trading System is determined within a rigid allocation programme. A reform of the EU ETS intends to make allowances allocation exible and contingent on the state of the system. We model the emissions market under adjustable allowance supply in a stochastic partial equilibrium framework and obtain closed form solutions for its dynamics. The model considers a supply control mechanism contingent on the number of allocated and unused allowances, as suggested by the European Commission. We derive analytical dependencies between the allowance allocation adjustment rate and the market equilibrium dynamics, which allows us to represent the quantity thresholds as quantiles for the number of allocated and unused allowances. Finally, we present an analytical tool for the selection of an optimal adjustment rate under both risk-neutrality and riskaversion. We thereby provide an analytical foundation for the regulator's decision-making in the context of the EU ETS reform and give a novel perspective on the mechanism's overall design. Terms of use: Documents inKeywords: EU ETS reform, policy design, responsiveness, resilience, supply management mechanism, risk-aversion. Sascha Kollenberg Chair for Energy Trading and FinanceUniversity

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Alternative Approaches to Cost Containment in a Cap-and-Trade System

Cited by 78 publications

References 21 publications

Modelling a Market Stability Reserve in Carbon Markets

Modelling a Market Stability Reserve in Carbon Markets

Climate Policy Design with Correlated Uncertainties in Offset Supply and Abatement Cost

The European Union Emissions Trading System and the Market Stability Reserve: Optimal Dynamic Supply Adjustment

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