Effects of transaction costs and discount rate on the banking decision of emission permits trading

Karima Fredj, Alain Jean-Marie (), Guiomar Martin-Herran and Mabel Tidball ()
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Karima Fredj: UNBC - University of Northern British Columbia [Prince George]
Alain Jean-Marie: NEO - Network Engineering and Operations - CRISAM - Inria Sophia Antipolis - Méditerranée - Inria - Institut National de Recherche en Informatique et en Automatique
Mabel Tidball: CEE-M - Centre d'Economie de l'Environnement - Montpellier - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro - Montpellier SupAgro - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement

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Abstract: This paper characterizes and compares the optimal and the strategic behaviour of two countries or firms that minimize costs facing emission standards. Emission standards can be reached through emission reduction, banking or borrowing, and emission trading in a given and fixed planning horizon. Our model extends the existing theoretical models in this area of research in two directions mainly. First, we revisit the model proposed by Rubin (1996) to introduce and study the impacts of transaction costs in tradeable emission markets. Second, we extend Stavins' (1995) work from a static to a dynamic setting. We analyze the case with and without transaction costs and the case with and without discount rate. We characterize solutions and equilibria in each case and, depending on the initial allocation, characterize the buyer and seller in the emission trading market. Our main findings extend Rubin's paper proving that agents equilibrium is not efficient when transaction cost are positive and expand Stavins' results to a dynamic framework.

Keywords: Transaction costs; Emission permits trading; Intertemporal continuous time framework (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ene, nep-env and nep-ore
Note: View the original document on HAL open archive server: https://inria.hal.science/hal-02372292v1
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Published in Advances in Economics and Business, 2020, 8 (1), pp.63-71. ⟨10.13189/aeb.2020.080106⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02372292

DOI: 10.13189/aeb.2020.080106

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