Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without non-regulated companies

Luca Taschini, Marc Chesney () and Mei Wang ()

Journal of Regulatory Economics, 2014, vol. 46, issue 1, 23-50

Abstract: This paper examines the investment strategies of compliance companies in irreversible abatement technologies and the environmental achievements of the system in an inter-temporal cap-and-trade market using laboratory experiments. The experimental analysis is performed under varying market structures: firstly, in a market that is exclusive to compliance companies and subsequently, in a market that is open to both compliance and non-compliance entities. In line with theoretical models on irreversible abatement investment, the paper shows that regulated companies trade permits at a premium. Also, steep per unit penalties for excess emissions prompt early investments in irreversible abatement technologies. Further, the paper shows that by contributing to the permit demand and supply, non-compliance companies (i) enhance the exchange of permits, helping the system to achieve a zero-excess permit position, (ii) increase the price levels, but has no apparent effect on price variability. Copyright Springer Science+Business Media New York 2014

Keywords: Irreversible abatement; Stochastic emissions; Dynamic trading; Participation restrictions; Non-compliance entities; Q50; C02; C91; D40 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Working Paper: Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without nonregulated companies (2011)
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DOI: 10.1007/s11149-013-9238-3

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