Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/176969 
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 6950
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We develop a 2-period emission trading model for a stock pollutant with demand shocks resolving over time. We find precise conditions for efficiency of a stabilization mechanism where cumulative available permits decrease with excess supply in early periods. Our model describes the stabilization rule, and identifies optimal parameters. The market stability mechanism substantially increases welfare, increases the domain of parameter values where (Stabilized) Banking outperforms Prices, and reduces price volatility. Our findings are important for emission trading schemes worldwide, such as California's Global Warming Solutions Act Scoping Plan, the U.S. Regional Greenhouse Gas Initiative, EU-ETS, and China's National ETS, the world’s largest carbon market.
Subjects: 
prices
quantities
emission trading
regulatory instruments
pollution
climate change
JEL: 
H23
Q54
Q58
Document Type: 
Working Paper
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