Modeling Intertemporal Trading of Emission Permits Under Market Power

Panagiotis Koromilas (), Angeliki Mathioudaki (), Sotirios Dimos () and Dimitris Fotakis ()
Additional contact information
Panagiotis Koromilas: National Technical University of Athens
Angeliki Mathioudaki: National Technical University of Athens
Sotirios Dimos: National Technical University of Athens
Dimitris Fotakis: National Technical University of Athens

Environmental & Resource Economics, 2023, vol. 84, issue 1, No 9, 278 pages

Abstract: Abstract In this work, we examine the effects of inter-temporal trading on the permit price and the existence of market power in the EU ETS. We contribute to the literature by dynamically modeling an emission trading system, taking into account (a) the interplay between dominant firms (leaders) and their competitive counterparts (followers), (b) intertemporal emission trading and (c) linkage between the permit and the output market. We provide equilibrium conditions for both leaders and followers. We conclude that leaders can affect followers’ decisions both in the permit and the output market, since they control the overall emission abatement. Leaders’ dominance may push followers to decrease their business-as-usual emissions and consequently their production levels by adjusting their overall abatement across periods. Further investigation through the actual emission data from the EU Transaction Log (EUTL) supports our theoretical findings. Finally, to examine model’s accuracy, we perform simulations recreating realistic scenarios. The simulation results show that our modeling reproduces the system’s behaviour and captures the changes in price, banking amount and emission levels with respect to variations on the output product and initial allocation.

Keywords: Emission trading systems; EU ETS; EUA; Market power; Inter-temporal trading (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s10640-022-00723-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:enreec:v:84:y:2023:i:1:d:10.1007_s10640-022-00723-9

Ordering information: This journal article can be ordered from
http://www.springer. ... al/journal/10640/PS2

DOI: 10.1007/s10640-022-00723-9

Access Statistics for this article

Environmental & Resource Economics is currently edited by Ian J. Bateman

More articles in Environmental & Resource Economics from Springer, European Association of Environmental and Resource Economists Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().