Uncertainty and speculators in an auction for emissions permits

Corina Haita-Falah ()
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Corina Haita-Falah: University of Kassel

Journal of Regulatory Economics, 2016, vol. 49, issue 3, No 3, 315-343

Abstract: Abstract Auctions have become popular as means of allocating emissions permits in the emissions trading schemes developed around the world. Mostly, only a subset of the regulated polluters participate in these auctions along with speculators, creating a market with relatively few participants and, thus, incentive for strategic bidding. I characterize the bidding behavior of the polluters and the speculators, examining the effect of the latter on the profits of the former and on the auction outcome. It turns out that in addition to bidding for compliance, polluters also bid for speculation in the aftermarket. While the presence of the speculators forces the polluters to bid closer to their true valuations, it also creates a trade-off between increasing the revenue accrued to the regulator and reducing the profits of the auction-participating polluters. Nevertheless, the profits of the latter increase in the speculators’ risk aversion.

Keywords: Cap-and-trade program; Emissions trading; Risk aversion; Speculators; Uniform-price auction (search for similar items in EconPapers)
JEL-codes: D44 D45 Q55 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11149-016-9299-1

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