Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/155576 
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper No. 6334
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Output-based allocations (OBAs) are typically used in emission trading schemes to mitigate leakage in sectors at risk. Recent work has shown they may also help to stabilize prices in markets subject to supply and demand shocks. We extend previous work to simultaneously include both leakage and volatility. Motivated by discussions on how to reform carbon markets around the world, and in Europe in particular, we use our model to revisit several critical issues in the design of these markets. In particular, we look at how different OBA schemes manage permit price uctuations and what are the implications of deducting OBA permits (the majority going to trade-exposed and carbon intensive sectors) from the overall permit allocation, so as to keep the global cap on emissions fixed (as it is the case in California and in the EU).
Subjects: 
pollution markets
carbon price volatility
output-based allocations
JEL: 
D24
L13
H23
L74
Document Type: 
Working Paper
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