Auction design for the allocation of carbon emission allowances: uniform or discriminatory price?

Rong-Gang Cong and Yi-Ming Wei

MPRA Paper from University Library of Munich, Germany

Abstract: Only four states used auction in Phase Ⅰ (2005-2007) of the European Union Emission Trading System, of which four used a uniform-price sealed auction format. Here we discuss whether the auction should adopt a uniform-price or discriminatory-price format using an agent-based carbon allowances auction model established for the purpose. The main conclusions are as follows: (1) when carbon allowances are relatively scarce, the government should use a discriminatory-price auction; when carbon allowances are relatively abundant, the government should use a uniform-price auction. (2) Uncertainty of the generating cost reduces the ability of an auction to know bidders’ private values, which will reduce the government’s revenue and reduce auction efficiency. (3) Compared with the discriminatory-price auction, the uniform-price auction can prevent large bidders from obtaining excessive profits. (4) The uniform-price auction is relatively insensitive to market structure. However, a monopoly market is more likely to develop under the discriminatory-price auction format. The results of the model have some policy implications for designing carbon market mechanisms in the future.

Keywords: Agent-based model; Carbon allowance; Discriminatory-price auction; Uniform-price auction. (search for similar items in EconPapers)
JEL-codes: Q4 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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