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Banking behavior under uncertainty: Evidence from the US Sulfur Dioxide Emissions Allowance Trading Program

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  • Olivier ROUSSE
  • Benoît SEVI

Abstract

The aim of this paper is to examine portfolio management of emission allowances in the US Sulfur Dioxide Emissions Allowance Trading Program, to determine whether utilities have a real motive to bank when risk increases. We test a theoretical model linking the motivation of the firm to accumulate permits in order to prepare itself to face a risky situation in the future. Empirical estimation using data for years 2001 to 2004 provides evidence of a relationship between banking behavior and uncertainty the utility is facing with.

Suggested Citation

  • Olivier ROUSSE & Benoît SEVI, 2006. "Banking behavior under uncertainty: Evidence from the US Sulfur Dioxide Emissions Allowance Trading Program," Cahiers du CREDEN (CREDEN Working Papers) 06.02.63, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
    • Handle: RePEc:mop:credwp:06.02.63
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    File URL: http://www.creden.univ-montp1.fr/downloads/cahiers/CC-06-02-63.pdf
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    References listed on IDEAS

    as
    1. Considine, Timothy J. & Larson, Donald F., 2006. "The environment as a factor of production," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 645-662, November.
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    Cited by:

    1. Creti, Anna & Villeneuve, Bertrand, 2008. "Equilibrium Storage in a Markov Economy," MPRA Paper 11944, University Library of Munich, Germany.
    2. repec:dau:papers:123456789/2280 is not listed on IDEAS

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    More about this item

    Keywords

    Emissions Trading; Permits Banking; Acid Rain Program Uncertainty; Risk Aversion; Prudence.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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