Not logged in.
Quick Search - Contribution
Contribution Details
| Type | Conference Presentation |
| Scope | Discipline-based scholarship |
| Title | Simultaneous CO2 permit trading and output decisions in a dynamic setting with multiple sources of uncertainty |
| Organization Unit | |
| Authors |
|
| Presentation Type | paper |
| Item Subtype | Original Work |
| Refereed | No |
| Status | Published in final form |
| Language |
|
| Event Title | ENVECON2013: Applied Environmental Economics Conference |
| Event Type | conference |
| Event Location | London |
| Event Start Date | March 15 - 2013 |
| Event End Date | March 15 - 2013 |
| Abstract Text | We investigate the simultaneous optimal decisions regarding the production, sales, and inventory of output, as well as theCO2 permit trading of a regulated firm under the EU ETS. By specifically modeling the uncertainty related to the prices of output and CO2 permits, the demand for output, as well as the availability of tradable pollution permits, we are able to identify how permit and production decisions influence each other. The simulations presented here suggest that under the EU ETS, a regulated firm has incentives to decrease pollution to the detriment of production. This feature is even stronger under conditions of higher uncertainty regarding the availability of permits on the market. The impact on total profits is however insignificant, since firms manage to balance sales decreases with inflows from permit trading. Moreover, we find that compared to the case of full availability of permits, firms are inclined to hold extra pollution allowances under uncertainty, in order to avoid incurring large penalty costs at the end of the compliance period. Interestingly, under the EU ETS firms choose to hold higher inventories of output in order to have anticipated information regarding the total realized emissions. We put forth that possible interventions on the carbon markets should target the variability of the allowance prices. Both very low and high levels of price volatility offer adverse incentives for firms regarding their emission reductions; instead policy makers should direct their actions towards establishing moderate levels of volatility. Additionally, a carbon market where large negative jumps are frequently present cannot constitute an effective pollution reduction policy. |
| Export |
BibTeX
|