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Emissions trading with rolling horizons

Simon Quemin and Raphael Trotignon

Working Papers from Chaire Economie du climat

Abstract: We build a model of competitive emissions trading under uncertainty with supply-side control. Firms can use rolling planning horizons to deal with uncertainty and can also exhibit bounded responsiveness to the control. We tailor the model to the EU ETS, calibrate it to 2008-2017 market developments and find that a rolling horizon is able to reconcile the banking dynamics with discount rates implied from futures' yield curves. We evaluate the 2018 market reform, decompose the impacts of its main features and quantify how they hinge on the firms' horizon and responsiveness. We highlight important implications for policy design and evaluation.

Keywords: Emissions trading; Rolling horizons; Bounded rationality; Decision-making under uncertainty; Supply-side control; EU-ETS (search for similar items in EconPapers)
Pages: 47 pages
Date: 2019
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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http://www.chaireeconomieduclimat.org/RePEc/cec/wp ... Quemin-Trotignon.pdf First version, 2019 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cec:wpaper:1901

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