Technology adoption in emission trading programs with market power

Francisco André and Carmen Arguedas

No 2017/01, Working Papers in Economic Theory from Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History)

Abstract: In this paper we study the relationship between market power in emission permit markets and endogenous technology adoption. The presence of market power results in a di- vergence of both abatement and technology adoption levels with respect to the benchmark scenario of perfect competition, as long as technology adoption becomes more e¤ective in reducing abatement costs. Also, the initial distribution of permits, in particular, the amount of permits initially given to the dominant rm, is crucial in determining over- or under-investment in relation to the benchmark model. Speci cally, if the dominant rm is initially endowed with more permits than the corresponding cost e¤ective allocation, this results in under- investment by the dominant rm and over- investment by the competitive fringe, regardless of the speci c amount of permits given to the latter rms. The results are reversed if the dominant rm is initially endowed with relatively few permits. Our ndings seem consistent with some empirical evidence about the performance of the power sector in the initial phases of the European Union Emission Trading System.

Keywords: environmental policy; emission permits; market power; environmentally-friendly technologies (search for similar items in EconPapers)
JEL-codes: C72 D43 D62 L51 Q55 Q58 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-01
New Economics Papers: this item is included in nep-com, nep-ene, nep-env, nep-ino, nep-reg and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Technology Adoption in Emission Trading Programs with Market Power (2018)
Journal Article: Technology Adoption in Emission Trading Programs with Market Power (2018)
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