Abuse of EU Emissions Trading for Tacit Collusion

In this paper, we show that loopholes in EU emissions trading law foster tacit collusion that impacts oligopolistic product markets. The abuses originate from the covert misuse of EU emissions trading institutions, such as pooling or project-based mechanisms. We analyse two types of these loopholes by means of game theoretical methods to show how oligopolistic firms establish output restrictions, even if those firms are price takers on the~permit market (which might actually be the case for the majority of obligated firms in the EU). The identified misuse of emissions trading law increases firms’ profits, decreases the consumers’ surplus and has negative effects on social welfare for specified parameter ranges. Consequently, public authorities should not allow emissions trading’s overall good reputation—based upon its efficient abatement of pollution—to blind them to options in European emissions trading legislation that would eventually restrict competition.      

Strategic Behavior,Private Information,and Decentralization in the European Union Emissions Trading System

In the European Union Emissions Trading System, the supply of carbon permits is determined in a decentralized manner by Member States. Alternatively, the supply could be determined by an EU central authority. We analyze whether decentralization leads to lower total abatement costs under various assumptions about the behavior of Member States and the privacy of information about their abatement costs. If Member States do not behave strategically, then decentralization is preferred, regardless of whether abatement costs are private information. If the Member States behave strategically, then decentralization may or may not be preferred, depending on the degree of uncertainty about abatement cost parameters, the variation in emission endowments, and the number of Member States.     

Market Power in Emissions Trading Markets Ruled by a Multiple Unit Double Auction: Further Experimental Evidence

We discuss selected methodological problems of previous Double Auction (DA) experiments and test the hypothesis that a Multiple Unit Double Auction (MUDA) is able to prevent market power in an emissions trading market. Additionally, we analyze how the information subjects receive about the market structure and different levels of subjects’ experience influence the behavior. Based on a larger number of independent observations than analyzed in previous studies, the experiment generates two main results. First, emissions trading markets ruled by a MUDA realize a high degree of efficiency even under market power conditions. However, a MUDA is, in general, not able to restrict market power. We observe persistent price discrimination in two market power environments, i.e., the distribution of profits is strongly shifted in favor of the strong market side without greatly harming efficiency. This result is independent of the information to subjects about the market structure. Second, when subjects are experienced, the efficiency is higher and the ability of the strong market side to exercise market power declines strongly. However, the variability of behavior is large and the strong market side is still able to realize supracompetitive profits in some groups.      

Intertemporal Permit Trading for the Control of Greenhouse Gas Emissions

This paper integrates two themes in the intertemporal permitliterature through the construction of an intertemporal bankingsystem for a pollutant that creates both stock and flow damages. A permit banking system for the special case of a pollutant thatonly causes stock damages is also developed. This latter,simpler case corresponds roughly to the greenhouse gas emissionreduction regime proposed by the U.S. Department of State as ameans of fulfilling the U.S. commitment to the FrameworkConvention on Climate Change. This paper shows that environmentalregulators can achieve the socially optimal level of emissionsand output through time by setting the correct total sum ofallowable emissions, and specifying the correct intertemporaltrading ratio for banking and borrowing. For the case ofgreenhouse gases, we show that the optimal growth rate of permitprices, and therefore the optimal intertemporal trading rate, hasthe closed-form solution equal to the ratio of current marginalstock damages to the discounted future value of marginal stockdamages less the decay rate of emissions in the atmosphere. Given a non-optimal negotiated emission path we then derive apermit banking system that has the potential to lower net socialcosts by adjusting the intertemporal trading ratio taking intoaccount the behavior of private agents. We use a simplenumerical simulation model to illustrate the potential gains fromvarious possible banking systems.     

Strategic partitioning of emission allowances under the EU Emission Trading Scheme

The EU Emission Trading Scheme (ETS) is breaking new ground in the experience with emission trading regimes across multiple jurisdictions. Since the EU ETS covers only some industries, it implies a hybrid emission control scheme where EU member states must apply complementary domestic emissions regulation for the non-trading sectors of their economies in order to comply with their national emission reduction targets. The EU ETS thus opens up for strategic partitioning of national emissions budgets by the member states between trading and non-trading sectors. In this paper we examine the potential effects of such strategic behavior on compliance cost and emissions prices. We show that concerns on efficiency losses from strategic partitioning are misplaced. In turn, our analysis implicitly indicates significant political economy forces behind EU climate policy, as both cost-effective and strategically motivated partitioning of national emission budgets are far off from the actual break-down between trading and non-trading sectors.     

Assessing the Impact of State Trading Enterprises

State Trading Enterprises (STEs) are periodically subject to intense scrutiny for their suspected negative impact on the international trade of agricultural goods. Sound empirical assessment of the impact of STEs is scant, in spite of the ongoing and intense debate over their impacts, especially in the context of reform at the WTO. In this paper we use the case of world wheat trade between 2212 country pairs over a 35 year span to assess STE impacts. Using a gravity model, we estimate a Poisson pseudo maximum likelihood fixed effects model of world wheat trade to assess the role of both the presence of STEs and STEs with monopoly power. Further addressing estimation challenges, we also estimate zero-inflated versions of Poisson and Negative Binomial Regression models. We find consistent support for the hypothesis that monopoly export STEs are associated with higher exports for their host country. Similarly, import STEs appear to inhibit wheat imports, suggesting a protectionist function.     

The evaluation of the performance of UK American unit trusts

This article examines the performance of 85 UK unit trusts with North American investment objectives between January 1985 and December 1996 using unconditional and conditional performance measures. The paper finds that, on average, the trusts register insignificant performance to each of the respective benchmark portfolios. In addition there is no evidence of any predictability in performance. The results of the article are consistent with market efficiency in that unit trusts do not, on average, possess private information, higher expenses tend not to improve performance, and trusts are not able to consistently outperform the market.     

管理者交易的市场择时能力对市场有效性的影响

管理者卖出和买入公告对股票市场具有一定的影响,以管理者卖出交易和买入交易为公告样本进行实证分析,检验公告当日及给定事件期超额收益的显著性.结果显示:卖出公告样本反对半强式有效假说,管理人能够“卖高”,获得超额收益;而买入公告样本支持半强式有效假说,管理者不能够“买低”,在公告日和事件期都不能获得超额收益.     

New directions in emissions trading: the potential contribution of new institutional economics

Once an arcane topic even among environmental economists, emissions trading systems have substantially increased during this past decade in the USA. Moreover, the implementation of these systems has necessitated increased involvement of professionals in many fields besides economics. This paper reviews the practical experience of the six major types of emissions trading systems, focusing on credit market development, participation and results, including transaction costs. Five more recent applications of emissions trading also are considered, as well as the possibility of inter-pollutant trading. While inter-pollutant trading has been successfully used for chlorofluorocarbons (CFCs), the applicability of this experience is probably very limited. Additionally, it would be highly premature to attempt an evaluation of these newer emissions trading systems, some of which have yet to be even partially implemented. In order to improve these latter and future programs, the paper considers the potential contribution of the New Institutional Economics (NIE) to emissions trading. The NIE is used to develop theoretical insights and a series of predictions about the performance of a range of emissions trading systems.     

International Emissions Trading and Induced Carbon-Saving Technological Change: Effects of Restricting the Trade in Carbon Rights

This paper examines the implications of restricting the tradability of carbon rights in the presence of induced technological change. Unlike earlier approaches aimed at exploring the tradability-technology linkage, we focus on climate-relevant “carbon-saving” technological change. This is achieved by incorporating endogenous investment in carbon productivity into the RICE-99 integrated assessment model of Nordhaus and Boyer (2000). Simulation analysis of various emission reduction scenarios with several restrictions on emissions trading reveals a pronounced dichotomy of effects across regions: Restrictions to trading raise the investments in carbon productivity in permit demanding regions while reducing them in permit supplying regions. In terms of per capita consumption, permit demanding regions lose and permit supplying regions gain from restrictions. In scenarios that involve “hot air,” restrictions to trade lower overall emissions, which results in reduced climate damage for most regions. Reduced damage, in turn, reduces the incentive to invest in carbon productivity.     

排污权交易市场构建的技术要件分析研究

我国自20世纪90年代开始引进排污权交易制度以来,已经经过了20年的时间,目前还处在试点中,距系统化、规范化的排污权交易市场的建立还有很大差距。文章指出,加快我国排污权交易市场的建设步伐,必须从分析构建排污权交易市场的关键要件出发,逐个突破。文章分析了影响我国排污权交易市场建立的几个关键的技术要件,并就目前应如何去突破提出了自己的看法和建议,以期为推动我国系统化、规范化公平有效的排污权交易市场的建立提供理论和技术支持。     

On the Use of Exchange Rates as Trading Rules in a Bilateral System of Transferable Discharge Permits

The use of a system of transferable discharge permitsto control the harmful effects of non-uniformly mixedpollutants requires the application of trading rulesin order to prevent permit trading among sources fromviolating environmental standards. The elements andproperties of bilateral trading rules can be analyzedmore easily once formulated as exchange rates, whichwould convert, in a cost-effective way, the emissionright potentially given up by the seller into an offsetting emission right acquired by the buyer. Inthis article, a new expression for such exchange ratesis proposed and then analyzed to infer someunexplored properties of the system.     

On the Efficiency of Competitive Markets for Emission Permits

It is typical for economists andpolicy makers alike to presume that competitivemarkets allocate emission permits efficiently.This paper demonstrates that competition in theemission permits market cannot assureefficiency when the product market isoligopolistic. We provide the conditions underwhich a bureaucratic mechanism is welfaresuperior to a tradeable emission permitssystem. Price-taking behaviour in the permitsmarket ensures transfer of licenses to the lessefficient in abatement firms, which then becomemore aggressive in the product market,acquiring additional permits. As a result, theless efficient firms end up with a higher thanthe welfare maximizing share of emissionpermits. If the less efficient in abatementfirms are also less efficient in production,competitive trading of permits may result inlower output and welfare.     

Over-Allocation or Abatement? A Preliminary Analysis of the EU ETS Based on the 2005–06 Emissions Data

This paper provides an initial analysis of the EU ETS based on the installation-level data for verified emissions and allowance allocations in the first 2 years of the first trading period. These data reveal that CO₂ emissions were about 3% lower than the allocated allowances. The main objective of the paper is to shed light on the extent to which over-allocation and abatement have taken place in 2005 and 2006, when a significant CO₂ price was observed. We propose a measure by which over-allocation can be judged and provide estimates of abatement based on emissions data and indicators of economic activity as well as trends in energy and carbon intensity. Finally, we discuss the insights and implications that emerge from this tentative assessment. The ideas expressed in this paper are those of the authors and do not necessarily represent views of the International Energy Agency or its Member Countries.     

Allocating Tradable Permits on the Basis of Market Price to Achieve Cost Effectiveness

It is a well known result that distributional constraints can lead to an imperfectly competitive permit market where the emission target is no longer met at least cost. In this paper, we suggest an allocation rule for tradable permits which can handle this problem. If the permit allocation is dependent on the market price for permits, this allocation rule can achieve both cost effectiveness and meet specific requirements for cost distribution across agents.     

Methane and Nitrous Oxide Emissions from Agriculture in the EU: A Spatial Assessment of Sources and Abatement Costs

Agriculture significantly contributes to emissions of greenhouse gases in the EU. By using a farm-type, supply-side oriented, linear-programming model of the European agriculture, the baseline levels of methane and nitrous oxide emissions are assessed at the regional level in the EU-15. For a range of CO₂-equivalent prices, we assess the potential abatement, as well as the resulting optimal mix of emission sources in the total abatement. Furthermore, we show that the spatial variability of the abatement achieved at a given carbon price is large, indicating that abatement cost heterogeneity is a fundamental feature in the design of a mitigation policy. The cost savings permitted by market-based instruments relative to uniform standard are shown to be large.     

The innovation impact of the EU Emission Trading System — Findings of company case studies in the German power sector

This paper provides a detailed analysis of how the European Emission Trading System (EU ETS) as the core climate policy instrument of the European Union has impacted innovation. Towards this end, we investigate the impact of the EU ETS on research, development and demonstration (RD&D), adoption, and organizational change. In doing so, we pay particular attention to the relative influences of context factors (policy mix, market factors and public acceptance) and firm characteristics (value chain position, technology portfolio, size and vision). Empirically, our qualitative analysis is based on multiple case studies with 19 power generators, technology providers and project developers in the German power sector which were conducted in 2008/09. We find that the innovation impact of the EU ETS has remained limited so far because of the scheme's initial lack of stringency and predictability and the relatively greater importance of context factors. Additionally, the impact varies significantly across technologies, firms, and innovation dimensions and is most pronounced for RD&D on carbon capture technologies and organizational changes. Our analysis suggests that the EU ETS on its own may not provide sufficient incentives for fundamental changes in corporate innovation activities at a level which ensures political long-term targets can be achieved.     

The opportunity cost of land use and the global potential for greenhouse gas mitigation in agriculture and forestry

This paper analyses the role of global land management alternatives in determining potential greenhouse gas mitigation by land-based activities in agriculture and forestry. Land-based activities are responsible for over a third of global greenhouse gas emissions, yet the economics of land-use decisions have not been explicitly modeled in global mitigation studies. In this paper, we develop a new, general equilibrium framework which effectively captures the opportunity costs of land-use decisions in agriculture and forestry, thereby allowing us to analyse competition for heterogeneous land types across and within sectors, as well as input substitution between land and other factors of production. When land-using sectors are confronted with a tax on greenhouse gas emissions, we find significant changes in the global pattern of comparative advantage across sectors, regions, and land types. Globally, we find that forest carbon sequestration is the dominant strategy for GHG emissions mitigation, while agricultural-related mitigation comes predominantly from reduced methane emissions in the ruminant livestock sector, followed by fertilizer and methane emissions from paddy rice. Regionally, agricultural mitigation is a larger share of total land-use emissions abatement in the USA and China, compared to the rest of the world, and, within agriculture, disproportionately from reductions in fertilizer-related emissions. The results also show how analyses that only consider regional mitigation, may bias mitigation potential by ignoring global market interactions. For example, USA-specific analyses likely over-estimate the potential for abatement in agriculture. Finally, we note that this general equilibrium framework provides the research community with a practical methodology for explicit modeling of global land competition and land-based mitigation in comprehensive assessments of greenhouse gas mitigation options.     

Marginal abatement costs of greenhouse gas emissions from European agriculture, cost effectiveness, and the EU non-ETS burden sharing agreement

We propose a quantitative assessment of the marginal abatement costs (MAC) of greenhouse gas emissions from European agriculture and analyze the implications of the non-ETS burden-sharing agreement (BSA) for this sector. This assessment is based on MAC reduced forms, the generic specification of which enables simple parameterization and numerical computations. Such MAC curves are parameterized for each Member State using the outputs of a detailed model of the European agricultural supply. They are then used to compute total and marginal abatement costs involved by the BSA targets, as well as the cost-effective effort sharing, the corresponding emission price and abatement costs. The main findings are: (i) flexibility mechanisms such as a cap-and-trade system for agricultural emissions could reduce the total costs of meeting the 10% EU abatement target by a factor two to three relative to the strict implementation of each country's target, (ii) the corresponding equilibrium emission price is found to be 32-42 €/tCO₂eq depending on the assumption regarding business-as-usual emissions, and (iii) a cap-and-trade system with allowances based on the BSA targets would involve substantial transfers from EU-15 countries to New Member States, an important share of which being made of ‘hot air’.     

Assessing the Degree of Spot Market Integration for U.S. Natural Gas: Evidence from Daily Price Data

This paper assesses the degree of market integration in the U.S. natural gas market following the FERC’s ‘open access’ reforms. Daily spot prices at 76 market locations from 1993 to 1997 are used to examine the geographic extent of the market and the speed with which market forces move prices toward equilibrium in the face of ongoing price shocks. The empirical results suggest that the East and Central regions form a highly integrated market, but that this market is quite segmented from the more loosely integrated Western market.