Dominant Agent and Intertemporal Emissions Trading

Cathrine Hagem and Hege Westskog ()
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Hege Westskog: CICERO, Center for International Climate and Environmental Research,, Postal: P.O. Box 1129,, Blindern, N-0318 Oslo, Norway

No 04/2005, Memorandum from Oslo University, Department of Economics

Abstract: In this paper we analyze how restricting intertemporal trading by prohibiting borrowing of emission permits affects the ability of a dominant agent to exploit its market power, and the consequences this has for the cost-effectiveness of implementing an emissions target. We show that the monopolist could take advantage of the constraint on borrowing by distributing the sale of permits ineffectively across periods, and moreover that this inefficiency is influenced by the way permits are initially allocated between agents. A cost-effective distribution of abatement across periods can be achieved by an appropriate distribution of the total endowments of permits over time for each agent.

Keywords: pollution permits; intertemporal trading; market power; borrowing constraint (search for similar items in EconPapers)
JEL-codes: D92 H74 Q52 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2005-04-06
New Economics Papers: this item is included in nep-ene and nep-env
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