Market Power and Windfall Profits in Emission Permit Markets

Beat Hintermann

No 09-62, CEPE Working paper series from CEPE Center for Energy Policy and Economics, ETH Zurich

Abstract: Although market power in permit markets has been examined in some detail following the seminal work of Hahn (1984), the effect of free allocation on price manipulation with market power in both output and permit market has not specifically been addressed. I show that in this case, the threshold for free allocation above which dominant firms will increase the permit price is below their emissions. In addition to being of general economic interest, this issue is relevant in the context of the EUETS. I find that European power generators received free allowances in excess of the derived threshold.

Keywords: Market power; emissions permit markets; air pollution; EU ETS; CO2; electricity generation; permit allocation; windfall profits; cost pass-through (search for similar items in EconPapers)
JEL-codes: H23 L11 L12 L13 L94 L98 Q48 Q52 Q53 Q54 Q58 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-02
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (4)

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