Expecting the Unexpected: Emissions Uncertainty and Environmental Market Design

Severin Borenstein, James Bushnell, Frank A. Wolak and Matthew Zaragoza-Watkins

No 20999, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study potential equilibria in California's cap-and-trade market for greenhouse gases (GHGs) based on information available before the market started. We find large ex ante uncertainty in business-as-usual emissions and in the abatement that might result from non-market policies, much larger than the reduction that could plausibly occur in response to an allowance price within a politically acceptable range. This implies that the market price is very likely to be determined by an administrative price floor or ceiling. Similar factors seem likely to be present in other cap-and-trade markets for GHGs.

JEL-codes: Q5 Q52 Q54 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-reg
Note: EEE IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Published as Severin Borenstein & James Bushnell & Frank A. Wolak & Matthew Zaragoza-Watkins, 2019. "Expecting the Unexpected: Emissions Uncertainty and Environmental Market Design," American Economic Review, vol 109(11), pages 3953-3977.

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