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Emissions trading with profit-neutral permit allocations

Hepburn, Cameron J. and Quah, John K. H. and Ritz, Robert A. (2013) Emissions trading with profit-neutral permit allocations. Journal of Public Economics, 98. pp. 85-99. ISSN 0047-2727

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Identification Number: 10.1016/j.jpubeco.2012.10.004

Abstract

This paper examines the impact of an emissions trading scheme (ETS) on equilibrium emissions, output, price, market concentration, and profits in a generalized Cournot model. We develop formulae for the number of emissions permits that have to be freely allocated to firms to neutralize the profit impact of the ETS. We show that its profit impact is usually limited: in a Cournot oligopoly with constant marginal costs, total industry profits are preserved so long as freely allocated permits cover a fraction of initial emissions that does not exceed the industry's Herfindahl index.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-public...
Additional Information: © 2012 Elsevier B.V.
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
Sets: Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Date Deposited: 20 Feb 2013 14:31
Last Modified: 26 Jun 2014 11:15
URI: http://eprints.lse.ac.uk/id/eprint/47901

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