Implications of Alternative Emission Trading Plans: Experimental Evidence

Neil Buckley, Stuart Mestelman and Andrew Muller

Department of Economics Working Papers from McMaster University

Abstract: Two approaches to emissions trading are cap-and-trade, in which an aggregate cap on emissions is distributed in the form of emission allowances and baseline-and-credit, in which firms earn emission reduction credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. To test this prediction we have developed a computerized environment in which subjects representing firms can adjust both their emission rates (per unit output) and capacity levels. Subjects buy or sell emission rights (allowances or credits) in a sealed bid call auction. The demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. This environment is to be used to compare short and long run responses to the alternative trading methods. Initial experiments in this environment will alternately hold emission rate and capacity choice constant. We report on six experimental sessions with variable emissions rates but fixed capacity and two pilot sessions with variable capacity but fixed emission rates.

JEL-codes: C90 L50 Q58 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2004-07
New Economics Papers: this item is included in nep-exp
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: IMPLICATIONS OF ALTERNATIVE EMISSION TRADING PLANS: EXPERIMENTAL EVIDENCE (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2004-07

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