Pollution Permit Markets with Intertemporal Trading and Asymmetric Information

Yates, Andrew J.; Cronshaw, Mark B.

doi:10.1006/jeem.2000.1153

Cited by 74 publications

(53 citation statements)

References 7 publications

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“…In such a scenario, the instrument choice decision does not arise because the regulator can achieve the first-best solution through either a price or quantity policy. If there is cost uncertainty, however, Yates and Cronshaw (2001) and Williams (2001) find that outcomes differ and the choice of whether to allow banking or borrowing of permits depends, as one might expect, on the relative slopes of marginal benefits and marginal costs. 5 They find that in cases where marginal damages are less steep than marginal costs, intertemporal trading raises net benefits.…”

Section: Previous Literaturementioning

confidence: 99%

“…In reality, most regulations exist in a multi-period, dynamic framework, which gives rise to a feature unique to a permit mechanism over time: the potential to bank and borrow permits between periods. A limited amount of work has explored the consequences of banking (Rubin and Kling 1993;Cronshaw and Kruse 1996;Rubin 1996;Kling and Rubin 1997;Schennach 2000;Leiby and Rubin 2001), and only recently has such work explored its implications for policy instrument choice due to the effect of cost uncertainty (Yates and Cronshaw 2001;Williams 2001). This is true despite the widespread * Newell and Pizer are Fellows at Resources for the Future, Washington, DC.…”

Section: Introductionmentioning

confidence: 99%

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Managing Permit Markets to Stabilize Prices

Newell

Pizer

Zhang

2005

Environ Resource Econ

109

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The political economy of environmental policy favors the use of quantity-based instruments over price-based instruments (e.g., tradable permits over green taxes), at least in the United States. With cost uncertainty, however, there are clear efficiency advantages to prices in cases where the marginal damages of emissions are relatively flat, such as with greenhouse gases. The question arises, therefore, of whether one can design flexible quantity policies that mimic the behavior of price policies, namely stable permit prices and abatement costs. We explore a number of “quantity-plus” policies that replicate the behavior of a price policy through rules that adjust the effective permit cap for unexpectedly low or high costs. They do so without necessitating any monetary exchanges between the government and the regulated firms, which can be a significant political barrier to the use of price instruments. Copyright Springer 2005banking, borrowing, prices, quantities, tradable permit market, uncertainty, Q28, Q48, D8 , L51,

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Section: Previous Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Managing Permit Markets to Stabilize Prices

Newell

Pizer

Zhang

2005

Environ Resource Econ

109

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“…That will be one of the many measures to be decided following the Parliamentary elections in May 2014 and the installation of a new Commission thereafter. 11 This linear reduction factor has been interpreted as a constant decrement equal to 1.74% of the average annual cap in Phase II. In the interest of simplicity, we ignore what will be an accelerating decrement when expressed as a proportion of each year's cap.…”

Section: Speci…cation Of the Marginal Abatement Cost Functionmentioning

confidence: 99%

An Analysis of Allowance Banking in the EU ETS

2015

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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. Terms of use: Documents in EconStor may AbstractThe existence of some 2 billion unused EU Allowances (EUAs) at the end of Phase II of the EU's Emissions Trading System (EU ETS) has sparked considerable debate about structural shortcomings of the EU ETS. However, there has been a surprising lack of interest in considering the accumulation of EUAs in light of the theory of intertemporal permit trading, i.e. allowance banking. In this paper we adapt basic banking theory to the case of a linearly declining cap, as is common in greenhouse gas control systems. We show that it is perfectly rational for agents to decrease emissions beyond the constraint imposed by the cap initially, accumulating an allowance bank and then drawing it down in the interest of minimizing abatement cost over time. Having laid out the theory, we carry out a set of simulations for a reasonable range of key parameters, geared to the EU ETS, to illustrate the e¤ects of intertemporal optimization of abatement decisions on optimal time paths of emissions and allowance prices. We conclude that bank accumulation as the result of intertemporal abatement cost optimization should be considered at least a partial explanation when evaluating the current discrepancy between the cap and observed emissions.JEL classi…cation: D92, F18, Q54

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“…The first is the literature on self-reporting in law enforcement that we have already mentioned. The second is the theoretical literature on intertemporal trading of emissions permits, which has focused on banking behavior, the welfare consequences of allowing banking, and the optimal design of banking rules (Cronshaw and Kruse 1996;Rubin 1996;Kling and Rubin 1997;Schennach 2000;Yates and Cronshaw 2001;Leiby and Rubin 2001;Phaneuf and Requate 2002). Finally the literature on enforcing emissions trading programs has provided insights into the determinants of compliance and the design of enforcement strategies for these programs (Malik 1990(Malik , 1992Keeler 1991;van Egteren and Weber 1996;Stranlund and Dhanda 1999;Stranlund and Chavez 2000).…”

Section: Introductionmentioning

confidence: 99%

Enforcing Emissions Trading when Emissions Permits are Bankable

2005

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We propose enforcement strategies for emissions trading programs with bankable emissions permits that guarantee complete compliance with minimal enforcement costs. Our strategies emphasize imperfect monitoring supported by a high unit penalty for reporting violations, and tying this penalty directly to equilibrium permit prices. This approach is quite different from several existing enforcement strategies that emphasize high unit penalties for emissions in excess of permit holdings. Our analysis suggests that a high penalty for excess emissions cannot be used to conserve monitoring effort, and that it may actually increase the amount of monitoring necessary to maintain compliance.

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Pollution Permit Markets with Intertemporal Trading and Asymmetric Information

Cited by 74 publications

References 7 publications

Managing Permit Markets to Stabilize Prices

Managing Permit Markets to Stabilize Prices

An Analysis of Allowance Banking in the EU ETS

Enforcing Emissions Trading when Emissions Permits are Bankable

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