Emissions Trading with Profit-Neutral Permit Allocations

Cameron Hepburn (), John Quah and Robert Ritz

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper examines the impact of an emissions trading scheme (ETS) on equilibrium emissions, output, price, market concentration, and profits in a generalized Cournot model. We develop formulae for the number of emissions permits that have to be freely allocated to firms to neutralize the profit impact of the ETS. We show that its profit impact is usually limited: in a Cournot oligopoly with constant marginal costs, total industry profits are preserved so long as freely allocated permits cover a fraction of initial emissions that does not exceed the industry's Herfindahl index.

Keywords: Cap-and-trade; permit allocation; profit-neutrality; cost pass-through; abatement; grandfathering (search for similar items in EconPapers)
JEL-codes: D43 H23 Q58 (search for similar items in EconPapers)
Date: 2012-08-17
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Emissions trading with profit-neutral permit allocations (2013)
Working Paper: Emissions Trading with Profit-Neutral Permit Allocations (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1235

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