EconPapers    
Economics at your fingertips  
 

Price containment in emissions permit markets: Balancing market risk and environmental outcomes

Andrew L. Liu and Yihsu Chen

IISE Transactions, 2017, vol. 49, issue 12, 1129-1149

Abstract: While cap-and-trade policies have been advocated as an efficient market-based approach in regulating greenhouse gas (GHG) emissions from the power sector, a major criticism is that the resulting prices of emissions permit may be volatile, adding more uncertainty to market participants, and hence deter their interests in participating the electricity market. To ease such a concern, various permit price-containment instruments, such as a price ceiling, floor, or collar, have been proposed. Though such instruments may prevent permit prices from being extreme, they may incur inadvertent results such as underinvestment in low-emission technologies or little reduction of system-wide GHG emissions, hence defeating the purpose of establishing a cap-and-trade policy in the first place. To address such issues, this article examines the effect of imposing various price-containment policies on investment decisions and spot market equilibria in an electricity market. Our major contribution is that, unlike other work in this area in which the price-containment schemes are exogenous to their market models we endogenously incorporate a price ceiling/floor in our models and hence can analyze the interactions between the policies and their corresponding market outcomes. We further introduce uncertainties in our market models and use California's data as a case study.

Date: 2017
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/24725854.2017.1362506 (text/html)
Access to full text is restricted to subscribers.

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:taf:uiiexx:v:49:y:2017:i:12:p:1129-1149

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uiie20

DOI: 10.1080/24725854.2017.1362506

Access Statistics for this article

IISE Transactions is currently edited by Jianjun Shi

More articles in IISE Transactions from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2025-03-20
Handle: RePEc:taf:uiiexx:v:49:y:2017:i:12:p:1129-1149