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Market Power and Technology Diffusion in an Energy-Intensive Sector Covered by an Emissions Trading Scheme

Bingxin Zeng () and Lei Zhu ()
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Bingxin Zeng: School of Economics and Management, Beihang University, Beijing 100191, China
Lei Zhu: School of Economics and Management, Beihang University, Beijing 100191, China

Sustainability, 2019, vol. 11, issue 14, 1-18

Abstract: The emissions trading scheme (ETS) has been long advocated to address climate change not only because it is cost effective but also because it can provide economic incentives for the adoption of new technologies. The emissions abatement of the energy-intensive sector covered by ETS is of great significance for the whole nation to attain sustainable and low-carbon development, especially for developing countries. This paper investigates the effect of market power in the emissions trading market on the diffusion of a new emissions abatement technology when firms in the energy-intensive sector interact in an imperfectly competitive output market. In the model, each firm needs to determine the optimal time to adopt the new emissions abatement technology, taking into account its benefits and costs, as well as its rival’s strategic behavior. With this framework, the results suggest that firms will delay adoption of the new emissions abatement technology in the presence of market power. Moreover, when the output demand is larger and more elastic, emissions abatement technology diffusion will occur earlier. It implies that the technology diffusion in the weak elastic sector, such as the Chinese iron and steel sector, may have more barriers than that in the strong elastic sector, such as the Chinese nonferrous metals sector.

Keywords: market power; emissions trading scheme; technology adoption; strategic behavior; energy-intensive sector (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2019
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