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Potential anti-competitive effects of emission permit markets – A survey on theoretical findings and evidence

Author

Listed:
  • Reichenbach Johanna

    (WINGAS GmbH, Friedrich-Ebert-Str. 160, 34119 Kassel, Germany. Phone: +49-561-3011467)

  • Requate Till

    (Department of Economics, University of Kiel, Olshausenstr. 40, 24098 Kiel, Germany)

Abstract

Emissions trading has been established as an important instrument of pollution control in many world regions. However concerns have been raised whether or not emission-trading schemes may distort competition either on the permit market itself or on related output markets. In this paper we review tradable emission-allowance schemes with special reference to anti-competitive effects. Such distortions may be caused by large firms exercising market power on the allowance market by holding down supply or suppressing demand in order to manipulate prices to their advantage. Firms may also try to abuse the allowance market to put other firms, with whom they compete on the output market, at a competitive disadvantage. Further distortions and abuses may be caused by special or ill-defined rules on the allowance market or other markets. In this paper we survey theoretical insights on potential anti-comptitive effects of emissions trading and also provide some empirical evidence for market power abuses on auctioned and grandfathered allowance markets with a particular focus on the (alleged) allowance market abuse by power utilities in Germany and California.

Suggested Citation

  • Reichenbach Johanna & Requate Till, 2013. "Potential anti-competitive effects of emission permit markets – A survey on theoretical findings and evidence," Review of Economics, De Gruyter, vol. 64(3), pages 271-292, December.
    • Handle: RePEc:lus:reveco:v:64:y:2013:i:3:p:271-292
    DOI: 10.1515/roe-2013-0302
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    Cited by:

    1. Dickson, Alex & MacKenzie, Ian A., 2018. "Strategic trade in pollution permits," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 94-113.
    2. Noah Dormady, 2016. "Carbon Auction Revenue and Market Power: An Experimental Analysis," Energies, MDPI, vol. 9(11), pages 1-20, November.

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