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Market power in the market for greenhouse gas emissions permits - the interplay with the fossil fuel markets

Author

Listed:
  • Hagem, Cathrine

    (Dept. of Economics, University of Oslo)

  • Mæstad, Ottar

    (Institute for Research in Economics and Business Administration (SNF), Bergen)

Abstract

Implementation of the Kyoto Protocol is likely to leave Russia and other Eastern European countries with market power in the market for emission permits. Ceteris paribus, this will raise the permit price above the competitive permit price. However, Russia is also a large exporter of fossil fuels. A high price on emission permits may lower the producer price on fossil fuels. Thus, if Russia coordinates its permit market and fossil fuel market policies, market power will not necessarily lead to a higher permit price. Fossil fuel producers may also exert market power in the permit market, provided they conceive the permit price to be influenced by their production volumes. If higher volumes drive up the permit price, Russian fuel producers may become more aggressive relative to their competitors in the fuel markets if the sale of fuels is coordinated with the sale of permits. The result is reversed if high fuel production drives the permit price down.

Suggested Citation

  • Hagem, Cathrine & Mæstad, Ottar, 2003. "Market power in the market for greenhouse gas emissions permits - the interplay with the fossil fuel markets," Memorandum 34/2002, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2002_034
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2002/Memo-34-2002.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Cathrine Hagem & Steffen Kallbekken & Ottar Mæstad & Hege Westskog, 2006. "Market Power with Interdependent Demand: Sale of Emission Permits and Natural Gas from Russia," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 34(2), pages 211-227, June.
    2. HAGEM Cathrine & KALLBEKKEN Steffen & MÆSTAD Ottar & WESTSKOG Hege, 2010. "Simultaneous Market Power for Complementary Goods: Gas and Emission Permit Exports," EcoMod2003 330700066, EcoMod.

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    More about this item

    Keywords

    Climate policy; gas; market power; emission permits;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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