Many economists and policy makers have long favored the use of a price instrument to control greenhouse gases because they are a stock pollutant and as such the marginal benefit of abatement is relatively flat. While the early literature on the problem is consistent with this view, the later...

In principle, linking emission trading schemes would favour the depletion of low-cost abatement opportunities that are geographically spread over the globe. However, this would only be possible if the price of the emission permits in the different schemes converge to one price. Using a simple...

This paper examines the key design mechanisms of existing and proposed cap-and-trade markets. First, it is shown that the hybrid systems under investigation (safety-valve with offsets, price floor using a subsidy, price collar, allowance reserve, and options offered by the regulator) can be...

We study investment and disinvestment decisions in situations where there is a time lag 0 from the time t when the decision is taken to the time when the decision is implemented. Applying the probabilistic approach to the combined entry and exit decisions under the Parisian implementation delay,...

The supply of allowances in the European Union Emissions Trading System is currently determined by a rigid allocation programme. The Market Stability Reserve (MSR) makes the allocation of allowances flexible and contingent on the aggregate bank, while preserving the overall emissions cap. We...

We propose a theory of the economic advantage (EA) of regulating carbon emissions by linking two emissions trading systems versus operating them under autarky. Linking implies that permits issued in one system can be traded internationally for use in the other. We show how the nature of...

This paper develops a simple model to evaluate the value and the activation frequencies of a generation system consisting of coal-fired and a gas-fired power plants using a real options approach, and the notions of clean-spark and clean-dark spreads. Under a cap-and-trade scheme, the use of...

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 invest both in low-emitting production technologies and trade permits. In the model, technology adoption and...