Unintended Consequences of Price Controls: An Application to Allowance Markets: Working Paper 2010-06

Andrew Stocking

No 21833, Working Papers from Congressional Budget Office

Abstract: Price controls established in an emissions allowance market to constrain allowance prices between a ceiling and a floor offer a mechanism to reduce cost uncertainty in a cap-and-trade program; however, they could provide opportunities for strategic actions by firms that would result in lower government revenue and greater emissions than in the absence of controls. In particular, when the ceiling price is supported by introducing new allowances into the market, firms could choose to buy allowances at the ceiling price, regardless of the prevailing market price, in order to

Date: 2010-09-20
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