Using Output-Based Allocations to Manage Volatility and Leakage in Pollution Markets

Guy Meunier, Juan-Pablo Montero and Jean-Pierre Ponssard

No 6334, CESifo Working Paper Series from CESifo

Abstract: Output-based allocations (OBAs) are typically used in emission trading schemes to mitigate leakage in sectors at risk. Recent work has shown they may also help to stabilize prices in markets subject to supply and demand shocks. We extend previous work to simultaneously include both leakage and volatility. Motivated by discussions on how to reform carbon markets around the world, and in Europe in particular, we use our model to revisit several critical issues in the design of these markets. In particular, we look at how different OBA schemes manage permit price uctuations and what are the implications of deducting OBA permits (the majority going to trade-exposed and carbon intensive sectors) from the overall permit allocation, so as to keep the global cap on emissions fixed (as it is the case in California and in the EU).

Keywords: pollution markets; carbon price volatility; output-based allocations (search for similar items in EconPapers)
JEL-codes: D24 H23 L13 L74 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Journal Article: Using output-based allocations to manage volatility and leakage in pollution markets (2017)
Working Paper: Using output-based allocations to manage volatility and leakage in pollution markets (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6334

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