Premium
DESIGNING POLLUTION MARKET INSTRUMENTS: CASES OF UNCERTAINTY
Author(s) -
CARLSON DALE A.,
SHOLTZ ANNE M.
Publication year - 1994
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.1994.tb00450.x
Subject(s) - volatility (finance) , economics , imperfect , production (economics) , emissions trading , unintended consequences , value (mathematics) , microeconomics , environmental economics , natural resource economics , business , industrial organization , greenhouse gas , econometrics , ecology , linguistics , philosophy , machine learning , political science , computer science , law , biology
This paper examines design alternatives for emissions trading credits and assesses their relative performance given several sources of uncertainty endemic to market‐based environmental regulatory programs. Facilities regulated in such programs face significant uncertainty about their total emissions. Uncertainty arises due to changes in production‐demand schedules for their product, imperfect knowledge of abatement efficiency, and other informational lags. Depending on the design of the trading credit, this uncertainty can result in significant market price volatility and undesirable increases in peak emissions (in the absence of additional costly market institutions, such as contingent contracts and brokered insurance). In addition to the design alternatives, the paper considers allocation alternatives to alleviate these unintended effects and also discusses the value of properly designed reconciliation markets .
Accelerating Research
Robert Robinson Avenue,
Oxford Science Park, Oxford
OX4 4GP, United Kingdom
Address
John Eccles HouseRobert Robinson Avenue,
Oxford Science Park, Oxford
OX4 4GP, United Kingdom