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Technology adoption in emission trading programs with market power

Author

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  • André, Francisco J.

    (Departamento de Análisis Económico. Universidad Complutense de Madrid.)

  • Arguedas, Carmen.

    (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)

Abstract

In this paper we study the relationship between market power in emission permit markets and endogenous technology adoption. The presence of market power results in a di- vergence of both abatement and technology adoption levels with respect to the benchmark scenario of perfect competition, as long as technology adoption becomes more e¤ective in reducing abatement costs. Also, the initial distribution of permits, in particular, the amount of permits initially given to the dominant rm, is crucial in determining over- or under-investment in relation to the benchmark model. Speci cally, if the dominant rm is initially endowed with more permits than the corresponding cost e¤ective allocation, this results in under- investment by the dominant rm and over- investment by the competitive fringe, regardless of the speci c amount of permits given to the latter rms. The results are reversed if the dominant rm is initially endowed with relatively few permits. Our ndings seem consistent with some empirical evidence about the performance of the power sector in the initial phases of the European Union Emission Trading System.

Suggested Citation

  • André, Francisco J. & Arguedas, Carmen., 2017. "Technology adoption in emission trading programs with market power," Working Papers in Economic Theory 2017/01, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    • Handle: RePEc:uam:wpaper:201701
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    References listed on IDEAS

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    1. Tim Laing & Misato Sato & Michael Grubb & Claudia Comberti, 2013. "Assessing the effectiveness of the EU Emissions Trading System," GRI Working Papers 106, Grantham Research Institute on Climate Change and the Environment.
    2. Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(4), pages 753-765.
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    5. Halvor Briseid Storrøsten, 2010. "Incentives to invest in abatement technology. A tax versus emissions trading under imperfect competition," Discussion Papers 606, Statistics Norway, Research Department.
    6. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
    7. Beat Hintermann, 2011. "Market Power, Permit Allocation and Efficiency in Emission Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(3), pages 327-349, July.
    8. Rogge, Karoline S. & Schneider, Malte & Hoffmann, Volker H., 2010. "The innovation impact of EU emission trading: findings of company case studies in the German power sector," Working Papers "Sustainability and Innovation" S2/2010, Fraunhofer Institute for Systems and Innovation Research (ISI).
    9. repec:dau:papers:123456789/10174 is not listed on IDEAS
    10. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Alfred Endres & Tim Friehe & Bianca Rundshagen, 2020. "Diffusion and adoption of advanced emission abatement technology induced by permit trading," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1313-1337, September.
    2. Bingxin Zeng & Lei Zhu, 2019. "Market Power and Technology Diffusion in an Energy-Intensive Sector Covered by an Emissions Trading Scheme," Sustainability, MDPI, vol. 11(14), pages 1-18, July.
    3. Mandaroux, Rahel & Schindelhauer, Kai & Basse Mama, Houdou, 2023. "How to reinforce the effectiveness of the EU emissions trading system in stimulating low-carbon technological change? Taking stock and future directions," Energy Policy, Elsevier, vol. 181(C).

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    More about this item

    Keywords

    environmental policy; emission permits; market power; environmentally-friendly technologies;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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