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IMPLICATIONS OF ALTERNATIVE EMISSION TRADING PLANS: EXPERIMENTAL EVIDENCE
Author(s) -
Buckley Neil J.,
Mestelman Stuart,
Muller R. Andrew
Publication year - 2006
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2006.00307.x
Subject(s) - emissions trading , baseline (sea) , economics , variable (mathematics) , aggregate (composite) , econometrics , monetary economics , microeconomics , greenhouse gas , mathematics , ecology , mathematical analysis , oceanography , materials science , composite material , biology , geology
. Two approaches to emissions trading are cap‐and‐trade, with an aggregate cap on emissions distributed as emission allowances, and baseline‐and‐credit, with firms earning emission reduction credits for emissions below baselines. Theory suggests the long‐run equilibria of the plans will differ with baselines proportional to output. To test this prediction we develop a computerized environment in which subjects representing firms can adjust their emission rates and capacity levels and trade emission rights in a sealed‐bid auction. Demand for output is simulated. We report on six laboratory sessions with variable emissions rates, but fixed capacity: three each with the cap‐and‐trade and baseline‐and‐credit mechanisms.