Modeling of Emission Allowance Markets: A Literature Review
Vincent Bertrand ()
Working Papers from Chaire Economie du climat
This paper reviews the development of emission trading models from the earliest to recent contributions. First, we introduce the economics of pollution control and the origins of emission trading. We give a brief description of policy instruments for the control of pollution, and explain why economic instruments (Pigouvian tax and emission trading) produce better results than “command-and-control” approaches. Second, we review several papers on modeling of emission trading systems, with a focus on dynamic models in case of perfect competition. We begin with the earliest static models, investigating a number of factor that can affect the effectiveness of emission trading (e.g. market power, transaction-costs, political pressures, etc). Next, we present dynamic models of permit markets, analysing questions such as banking/borrowing, relationship between spot and future markets, exogenous factors influencing the marginal abatement cost, etc. Finally, we end the paper with recent studies that model the main features of the European Emission Trading Scheme (EU ETS) in a dynamic framework with stochastic emissions.
Keywords: Emission Trading; EU ETS; Partial Equilibrium Modeling (search for similar items in EconPapers)
Pages: 30 pages
New Economics Papers: this item is included in nep-ene, nep-env, nep-eur, nep-law and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:cec:wpaper:1304
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