This paper examines the key design mechanisms of existing and proposed cap-and-trade markets. Fir... more This paper examines the key design mechanisms of existing and proposed cap-and-trade markets. First, it is shown that the hybrid systems under investigation (price floor using a minimum price guarantee, price collar, allowance reserve, options offered by the regulator, and offset relaxation) can be decomposed into a combination of an ordinary cap-and-trade scheme with European-or American-style call and put options. Then, we quantify and discuss the advantages and disadvantages of the proposed hybrid schemes by investigating whether pre-set objectives (enforcement of permit price bounds and reduction of the compliance costs for relevant companies) can be accomplished while maintaining the original environmental targets. Plain vanilla options are proposed as an alternative that reconciles the otherwise conflicting policy objectives.
Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without non-regulated companies
Abstract This paper examines the investment strategies of regulated companies in irreversible aba... more Abstract This paper examines the investment strategies of regulated companies in irreversible abatement technologies and the environmental achievements of the system in an inter-temporal capandtrade market using laboratory experiments. The experimental ...
An econometric analysis of emission trading allowances
... of the returns on the emission allowance spot prices. ... parity. Sections 5 and 6 provide th... more ... of the returns on the emission allowance spot prices. ... parity. Sections 5 and 6 provide the empirical analysis of the SO2 nd CO2 returns, respectively. ... (2006) use a jumpdiffusion model to approximate the random behavior of the carbon dioxide emission spor price. ...
Many economists and policy makers have long favored the use of a price instrument to control gree... more Many economists and policy makers have long favored the use of a price instrument to control greenhouse gases because they are a stock pollutant and as such the marginal benefit of abatement is relatively flat. While the early literature on the problem is consistent with this view, the later literature is less categorical. It showed that the choice between a price or quantity control depends, in part, upon the assumption on the dynamic structure of cost uncertainty. Temporary shocks to abatement cost favors the use of a price control, while permanent shocks favor a quantity control. Unfortunately, the importance of this assumption to the optimal choice has not yet received wide currency among economists. We analyze the problem in an alternative setting and reproduce the result that temporary shocks favor use of a price control while permanent shocks favor use of a quantity control. Our contribution is the simplicity of the model and the accessibility of the results, which reinforce the critical role played by the assumed structure of uncertainty.
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Papers by Luca Taschini