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Alternative intertemporal permit trading regimes with stochastic abatement costs

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  • Feng, Hongli
  • Zhao, Jinhua

Abstract

We examine the social efficiency of alternative intertemporal permit trading regimes. The role of uncertainty and information asymmetry is discussed. For banking to be welfare improving, uncertainty itself does not matter, while information asymmetry does. Three effects of banking are identified: externality effect, information effect, and total permit effect. In the absence of total permit effect, banking is welfare improving if information effect is positive and dominates the externality effect. The relative efficiency of banking regimes with different intertemporal trading ratios is affected by the slope of the benefit and damage functions and the covariance of the shocks.

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  • Feng, Hongli & Zhao, Jinhua, 2006. "Alternative intertemporal permit trading regimes with stochastic abatement costs," ISU General Staff Papers 200601010800001338, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:200601010800001338
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    Cited by:

    1. Ikefuji, M. & Laeven, R.J.A. & Magnus, J.R. & Muris, C.H.M., 2010. "Scrap Value Functions in Dynamic Decision Problems," Discussion Paper 2010-77, Tilburg University, Center for Economic Research.
    2. Martin L. Weitzman, 2020. "Prices or Quantities Can Dominate Banking and Borrowing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 437-463, April.
    3. Jiang, Minxing & Zhu, Bangzhu & Wei, Yi-Ming & Chevallier, Julien & He, Kaijian, 2018. "An intertemporal carbon emissions trading system with cap adjustment and path control," Energy Policy, Elsevier, vol. 122(C), pages 152-161.
    4. Olli-Pekka Kuusela & Jussi Lintunen, 2020. "A Cap-and-Trade Commitment Policy with Allowance Banking," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(3), pages 421-455, March.
    5. Slechten, Aurélie, 2013. "Intertemporal links in cap-and-trade schemes," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 319-336.
    6. Aude Pommeret & Katheline Schubert, 2018. "Intertemporal Emission Permits Trading Under Uncertainty and Irreversibility," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(1), pages 73-97, September.
    7. Woerman, Matt, 2023. "Linking carbon markets with different initial conditions," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    8. Makoto Hasegawa & Stephen Salant, 2015. "The Dynamics of Pollution Permits," Annual Review of Resource Economics, Annual Reviews, vol. 7(1), pages 61-79, October.
    9. Lintunen, Jussi & Kuusela, Olli-Pekka, 2018. "Business cycles and emission trading with banking," European Economic Review, Elsevier, vol. 101(C), pages 397-417.
    10. Simon Quemin & Christian Perthuis, 2019. "Transitional Restricted Linkage Between Emissions Trading Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 1-32, September.
    11. Holland, Stephen P. & Yates, Andrew J., 2015. "Optimal trading ratios for pollution permit markets," Journal of Public Economics, Elsevier, vol. 125(C), pages 16-27.
    12. Fell, Harrison & MacKenzie, Ian A. & Pizer, William A., 2012. "Prices versus quantities versus bankable quantities," Resource and Energy Economics, Elsevier, vol. 34(4), pages 607-623.
    13. repec:dau:papers:123456789/2267 is not listed on IDEAS
    14. Jussi Lintunen & Olli-Pekka Kuusela, 2015. "Optimal Management of Markets for Bankable Emission PermitsOptimal Management of Markets for Bankable Emission Permits," Working Papers 2015.48, Fondazione Eni Enrico Mattei.
    15. Raphaël Trotignon & Pierre-André Jouvet & Boris Solier & Simon Quemin & Jérémy Elbeze, 2015. "European carbon market: lessons on the impact of a market stability reserve using the Zephyr model," Working Papers 1511, Chaire Economie du climat.
    16. Baran Doda, Simon Quemin, Luca Taschini, 2017. "A theory of gains from trade in multilaterally linked ETSs," GRI Working Papers 275, Grantham Research Institute on Climate Change and the Environment.
    17. Linghu, Dazhi & Wu, Xilin & Lai, Kee-Hung & Ye, Fei & Kumar, Ajay & Tan, Kim Hua, 2022. "Implementation strategy and emission reduction effectiveness of carbon cap-and-trade in heterogeneous enterprises," International Journal of Production Economics, Elsevier, vol. 248(C).
    18. Benjamin Leard, 2013. "The Welfare Effects of Allowance Banking in Emissions Trading Programs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(2), pages 175-197, June.

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