An Experimental Analysis of Auctioning Emission Allowances Under a Loose Cap

William Shobe, Karen Palmer, Erica Myers, Charles Holt, Jacob Goeree and Dallas Burtraw

Agricultural and Resource Economics Review, 2010, vol. 39, issue 2, 14

Abstract: The direct sale of emission allowances by auction is an emerging characteristic of cap-and-trade programs. This study is motivated by the observation that all of the major implementations of cap-and-trade regulations for the control of air pollution have started with a generous allocation of allowances relative to recent emissions history, a situation we refer to as a “loose cap.” Typically more stringent reductions are achieved in subsequent years of a program. We use an experimental setting to investigate the effects of a loose cap environment on a variety of auction types. We find that all auction formats studied are efficient in allocating emission allowances, but auction revenues tend to be lower relative to competitive benchmarks when the cap is loose. Regardless of whether the cap is tight or loose, the different auction formats tend to yield comparable revenues toward the end of a series of auctions. However, aggressive bidding behavior in initial discriminatory auctions yields higher revenues than in the other auction formats, a difference that disappears as bidders learn to adjust their bids closer to the cut-off that separates winning and losing bids.

Keywords: Environmental Economics and Policy; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Date: 2010
References: View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Journal Article: An Experimental Analysis of Auctioning Emission Allowances Under a Loose Cap (2010)
Working Paper: An Experimental Analysis of Auctioning Emissions Allowances under a Loose Cap (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:arerjl:90827

DOI: 10.22004/ag.econ.90827

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