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http://hdl.handle.net/10419/56671
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| Title: | | Pollution permits, strategic trading and dynamic technology adoption  |
| Authors: | | Moreno-Bromberg, Santiago Taschini, Luca |
| Issue Date: | | 2011 |
| Series/Report no.: | | SFB 649 discussion paper 2011-042 |
| Abstract: | | This paper analyzes the dynamic incentives for technology adoption under a transferable permits system, which allows for strategic trading on the permit market. Initially, firms can both invest in low-emitting production technologies and trade permits. In the model, technology adoption and allowance prices are generated endogenously and are inter-dependent. It is shown that the non-cooperative permit trading game possesses a pure-strategy Nash equilibrium, where the allowance value reflects the level of uncovered pollution (demand), the level of unused allowances (supply), and the technological status. These conditions are also satisfied when a price support instrument (dubbed European-cash-for-permits), which is contingent on the adoption of the new technology, is introduced. Numerical investigation confirms that this policy generates a floating price floor for the allowances, and it restores the dynamic incentives to invest. Given that this policy comes at a cost, a criterion for the selection of a self-financing policy (based on convex risk measures) is proposed and implemented. |
| Subjects: | | dynamic regulation emission permits environment self-financing policy technology adoption |
| JEL: | | D8 H2 L5 Q5 |
| Document Type: | | Working Paper |
| Appears in Collections: | | SFB 649 Discussion Papers, HU Berlin
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