Cap-and-Trade Properties under Different Scheme Designs

Georg Grüll and Luca Taschini

Working Papers from Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research

Abstract: This paper examines the key design mechanisms of existing and proposed cap-and-trade markets. First, it is shown that the hybrid systems under investigation (safety-valve with offsets, price floor using a subsidy, price collar, allowance reserve, and options offered by the regulator) can be decomposed into a combination of an ordinary cap-and-trade scheme with European- or American-style call and put options. Then, we quantify and discuss the advantages and disadvantages of the proposed hybrid schemes by investigating whether pre-set objectives (enforcement of permit price bounds and reduction of potential costs for relevant companies) can be accomplished while maintaining the original environmental targets.

Date: 2009-11
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:mee:wpaper:0919

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