Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/211175 
Year of Publication: 
2019
Series/Report no.: 
Working Paper No. 016.2019
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
There is a large consensus that low levels of carbon price cannot provide adequate incentives to invest in cleaner technologies and abate emissions. Since carbon demand and price tend to decrease during recessions, economists and policy makers have proposed different types of price stabilizing mechanisms (PSM) for emissions markets to prevent carbon price from falling too low. We investigate the effects of a PSM on investments and emissions and show that when unfavorable macroeconomic conditions reduce emissions, adjusting the supply of allowances to sustain their price may inhibit investments. Moreover, when firms invest in an integrated abatement technology, not only can emissions increase - an effect previously examined in the literature - but a PSM can exacerbate this effect when an exogenous negative shock curbs the demand of carbon.
Subjects: 
Carbon Markets
Price Stabilizing Mechanisms
Macroeconomic Recession
JEL: 
Q5
Q55
Document Type: 
Working Paper

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