Rate of Return Regulation and Emission Permits Trading under Uncertainty

• Tác giả: Fan Zhang
• Ngôn ngữ: eng
• Ký hiệu phân loại: 333.71 Economics of land and energy
• Thông tin xuất bản: World Bank, Washington, DC, 2015
• Bộ sưu tập: Tài liệu truy cập mở
• ID: 302329
• Chủ đề: 1. ALLOCATION OF ALLOWANCES; 2. ALLOWANCE; 3. PUBLIC UTILITIES; 4. TOTAL EMISSIONS; 5. UNCERTAINTIES

Tóm tắt

This paper analyzes the dynamic effects of rate-of-return regulation on firms' emissions compliance behavior when the price of emissions permits is uncertain. The paper shows that uncertainty regarding the price of permits would motivate a regulated firm to adopt a more self-sufficient strategy and would reduce the cost-effectiveness of emission allowance trading. When allowance transactions are treated as capital investments, uncertainty could reverse the classic Averch-Johnson effect, so that a regulated firm would purchase fewer permits in the ex ante period than its unregulated counterpart. These results are driven by the asymmetric impact of a price change on the expected marginal value of allowances under rate-of-return regulation. A wider variation in the permit price and a decline in the regulated rate of return would amplify the asymmetry. These results have implications for the efficiency of the proposed global carbon trading system.