Banking and back-loading emission permits

Corinne Chaton, Anna Creti and Benoît Peluchon
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Anna Creti: LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Benoît Peluchon: EDF R&D - EDF R&D - EDF - EDF

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Abstract: In this article we focus on the so-called back-loading policy adopted by the European Commission to increase the carbon market price. This environmental measure consists of removing a share of the allowances allocated for a given period in order to reallocate some or all of them later on. To analyze the impact of the permits back-loading, we determine the CO2 price equilibrium with and without the policy measure, considering not only the market for permits but also the output market of regulated sectors. We propose a two-period model, where the market for permits is perfectly competitive, and the output market can be either competitive or oligopolistic. First, we define the condition under which banking from one period to another is optimal. This condition, that is the absence of arbitrage opportunities (AOA), depends not only from the period initial allocation but also on production market fundamentals. When this condition is satisfied, the market for emission is shown intertemporally efficient. Second, we point out that the back-loading measure may create inefficiencies or leave unaffected the permits price, if it alters the AOA.

Keywords: CO2 prices; Banking; Back-loading; ETS reform (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (11)

Published in Energy Policy, 2015, 82, ⟨10.1016/j.enpol.2015.01.023⟩

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Related works:
Journal Article: Banking and back-loading emission permits (2015)
Working Paper: Banking and back-loading emission permits (2015)
Working Paper: Banking and backloading emission permits (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01517406

DOI: 10.1016/j.enpol.2015.01.023

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