Carbon sequestration and permit trading on the competitive fringe

Arthur Caplan

Economic Modelling, 2011, vol. 28, issue 6, 2803-2810

Abstract: This paper makes two contributions to the carbon-sequestration policy literature. First and foremost, we develop a theoretical framework in which sequestration and permit-trading markets are analyzed jointly in the context of a competitive fringe model. Our framework formalizes the linkage between regulatory policy changes (as they manifest themselves in the permit market) and subsequent equilibrium allocations in the sequestration market. Second, we perform a numerical analysis demonstrating the role market structure, or market power, might play in the determination of the equilibrium sequestration allocation and carbon price. Both our analytical and numerical results demonstrate the importance of incorporating into empirical supply-side models demand-side information that is reflective of an underlying market structure.

Keywords: Carbon sequestration; Competitive fringe; Abatement credits (search for similar items in EconPapers)
JEL-codes: D43 L13 Q54 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:6:p:2803-2810

DOI: 10.1016/j.econmod.2011.08.018

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