Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 04/2005: Dominant Agent and Intertemporal Emissions Trading
Cathrine Hagem () and Hege Westskog ()
Additional contact information
Cathrine Hagem: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Hege Westskog: CICERO, Center for International Climate and Environmental Research,, Postal: P.O. Box 1129,, Blindern, N-0318 Oslo, Norway
Abstract: In this paper we analyze how restricting intertemporal trading by prohibiting borrowing of emission permits affects the ability of a dominant agent to exploit its market power, and the consequences this has for the cost-effectiveness of implementing an emissions target. We show that the monopolist could take advantage of the constraint on borrowing by distributing the sale of permits ineffectively across periods, and moreover that this inefficiency is influenced by the way permits are initially allocated between agents. A cost-effective distribution of abatement across periods can be achieved by an appropriate distribution of the total endowments of permits over time for each agent.
Keywords: pollution permits; intertemporal trading; market power; borrowing constraint
35 pages, April 6, 2005
Full text files
Memo-04-2005.pdf
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