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Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without non-regulated companies

Taschini, Luca, Chesney, Marc and Wang, Mei (2014) Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without non-regulated companies. Journal of Regulatory Economics, 46 (1). pp. 23-50. ISSN 0922-680X

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Identification Number: 10.1007/s11149-013-9238-3

Abstract

This paper examines the investment strategies of compliance companies in irreversible abatement technologies and the environmental achievements of the system in an inter-temporal cap-and-trade market using laboratory experiments. The experimental analysis is performed under varying market structures: firstly, in a market that is exclusive to compliance companies and subsequently, in a market that is open to both compliance and non-compliance entities. In line with theoretical models on irreversible abatement investment, the paper shows that regulated companies trade permits at a premium. Also, steep per unit penalties for excess emissions prompt early investments in irreversible abatement technologies. Further, the paper shows that by contributing to the permit demand and supply, non-compliance companies (i) enhance the exchange of permits, helping the system to achieve a zero-excess permit position, (ii) increase the price levels, but has no apparent effect on price variability.

Item Type: Article
Official URL: http://link.springer.com/journal/11149
Additional Information: © 2014 Springer
Divisions: Grantham Research Institute
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
JEL classification: C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior
D - Microeconomics > D4 - Market Structure and Pricing > D40 - General
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q50 - General
Sets: Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Date Deposited: 10 Feb 2014 11:31
Last Modified: 20 Sep 2019 01:49
Funders: Centre for Climate Change Economics and Policy, UK Economic and Social Research Council (ESRC), Munich Re
URI: http://eprints.lse.ac.uk/id/eprint/55605

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