Cap-and-Trade Programs under Continual Compliance

Makoto Hasegawa and Stephen Salant

RFF Working Paper Series from Resources for the Future

Abstract: Price collars have frequently been advocated to restrict the price of emissions permits. Consequently, collars were incorporated in the three bills languishing in Congress as well as in California?'s AB-32; Europeans are now considering price collars for EU ETS. In advocating collars, most analysts have assumed (1) collars will be implemented by government purchases and sales from bufferstocks, just like bands on foreign exchange rates or commodity prices; and (2) ?firms must surrender permits whenever they pollute. In fact, however, no actual emissions trading scheme has conformed to these assumptions. In the current paper, we maintain the second assumption (continual compliance) and show that while a price collar supported by a supported sufficiently large bufferstock can restrict permit prices, a price collar supported instead by auctions with reserve prices cannot. In a companion paper (Hasegawa and Salant 2012), we show that neither method works once account is taken of delayed compliance.

Keywords: emissions trading; marketable permits; price collar; safety valve; price ceiling; price floor (search for similar items in EconPapers)
JEL-codes: Q54 Q58 (search for similar items in EconPapers)
Date: 2012-08-20
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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