Emissions Variability in Tradable Permit Markets with Imperfect Enforcement and Banking

Timothy Cason and Lata Gangadharan ()

No 917, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: Unexpected variation in emissions can have a substantial impact on the prices and efficiency of tradable emission permit markets. In this paper we report results from a laboratory experiment in which subjects participate in an emissions trading market in the presence of emissions uncertainty. Subjects face exogenous, random positive or negative shocks to their emission levels after they make production and emission control plans. In some sessions we allow subjects to bank their unused permits for future use. In all sessions, subjects can trade in a reconciliation period to buy or sell extra permits following the shock realization. Subjects then report their emissions to the regulatory authority and they are placed in different inspection groups depending on their compliance history. The design of our experiment allows us to identify important interactions between emission shocks, banking, compliance and enforcement. We find that the relationship between emission shocks and price changes is significantly stronger without banking, so banking helps smooth out the price variability arising from the imperfect control of emissions. This greater price stability comes at a cost, however, since noncompliance and emissions are significantly greater when banking is allowed.

Keywords: Emissions Trading; Correlated Shocks; Banking; Laboratory Experiments. (search for similar items in EconPapers)
JEL-codes: C91 D80 Q20 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.economics.unimelb.edu.au/downloads/wpapers-04/917.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.economics.unimelb.edu.au/downloads/wpapers-04/917.pdf [301 Moved Permanently]--> http://fbe.unimelb.edu.au/economics/downloads/wpapers-04/917.pdf [301 Moved Permanently]--> https://fbe.unimelb.edu.au/economics/downloads/wpapers-04/917.pdf)

Related works:
Journal Article: Emissions variability in tradable permit markets with imperfect enforcement and banking (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:917

Access Statistics for this paper

More papers in Department of Economics - Working Papers Series from The University of Melbourne Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Dandapani Lokanathan ().