Carbon auctions, energy markets & market power: An experimental analysis

Noah Dormady ()

Energy Economics, 2014, vol. 44, issue C, 468-482

Abstract: This paper provides an experimental analysis of a simultaneous energy-emissions market under conditions of market power. The experimental design employs real-world institutional features; including stochastic demand, permit banking, inter-temporal (multi-round) dynamics, a tightening cap, and resale. The results suggest that dominant firms can utilize energy-emissions market linkages to simultaneously inflate the price of energy and suppress the price of emissions allowances. Whereas under prior market designs, regulators were concerned with dominant firms exercising their market power over the emissions market to exclude rivals and manipulate the permit market by hoarding permits; the results of this paper suggest that this strategy is less profitable to dominant firms in contemporary auction-based markets than strategic capacity withholding in the energy market and associated demand reduction in the emissions market.

Keywords: Emissions market; Energy market; Market power; Experimental economics (search for similar items in EconPapers)
JEL-codes: C90 D43 D44 Q40 Q54 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:44:y:2014:i:c:p:468-482

DOI: 10.1016/j.eneco.2014.03.013

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