Do Emission Trading Schemes Facilitate Efficient Abatement Investments? An Experimental Study

Silvester Van Koten

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: Cap-and-trade programs, such as the EU carbon Emission Trading Scheme, are currently the most prominent market-based method used to reduce carbon emissions. Cap-and-trade programs are, on theoretical grounds, considered to be a cost-efficient method. Experimental evidence, however, shows that experimental subjects make highly inefficient abatement choices and that permit allocation methods (allocating permits for free or against payment) bias subjects to too much or too little abatement. The experimental evidence thus suggests that cap-and-trade programs may in practice be more costly than theory predicts. This study, however, challenges this interpretation and shows that, when they are price takers (as in thick markets) and have ample opportunities for learning, subjects quickly learn to make accurate decisions and that these decisions are not affected by the permit allocation method.

Keywords: abatement; cap-and-trade; experimental economics; emission trading system; carbon permits; experience effects (search for similar items in EconPapers)
JEL-codes: C91 D62 Q54 Q55 Q58 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-ene, nep-env, nep-exp and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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