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Price controls and banking in emissions trading: An experimental evaluation

John Stranlund (), James Murphy () and John Spraggon ()

Journal of Environmental Economics and Management, 2014, vol. 68, issue 1, 71-86

Abstract: We present results from laboratory emissions markets designed to investigate the effects of price controls and permit banking on limiting permit price risk. While both instruments reduce between-period price volatility and within-period price dispersion, combining price controls and permit banking yields important benefits. Banking alone produces high permit prices in earlier periods that fall over time, but the combined policy produces lower initial prices and lower volatility. However, banking, price controls, and the combination all produce higher between-period emissions volatility. Hence, for emissions markets that seek to control flow pollutants with strictly convex damages, efforts to limit permit price risk can result in higher expected damage.

Keywords: Emissions trading; Cap and trade; Laboratory experiments; Permit markets; Permit banking; Price controls; Price collars (search for similar items in EconPapers)
JEL-codes: C91 L51 Q58 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.jeem.2014.04.002

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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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