A Note on Speculation, Emissions Trading and Environmental Protection

Laura Castellucci () and Alessio D’Amato ()
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Alessio D’Amato: University of Rome “Tor Vergata”
Authors registered in the RePEc Author Service: Alessio D'Amato ()

Rivista di Politica Economica, 2009, vol. 99, issue 2, 127-144

Abstract: This paper addresses the role speculation may play in environmental protection under emissions trading. We build a two period model with n firms and a representative speculator, and compare a benchmark case with no speculation with one where speculation takes place under environmental policy uncertainty. We find that, when a stricter environmental policy is expected in the second period, speculation generates both a higher permits price and a better environmental quality in the first period. Further, when a decrease in future policy strictness is expected, an increase in first period environmental quality may follow. Speculation may therefore help accelerate the speed of environmental improvement.

Keywords: emissions trading; financial markets; uncertainty; environmental policy (search for similar items in EconPapers)
JEL-codes: D62 D84 Q58 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:rpo:ripoec:v:99:y:2009:i:2:p:127-144

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