Cap-and-Trade Properties Under Different Scheme Designs
In: Journal of Environmental Economics and Management, Jg. 61 (2011) ; Nr. 1, S. 107-118
Zeitschriftenaufsatz / Fach: Wirtschaftswissenschaften
Fakultät für Wirtschaftswissenschaften
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 decomposed into a combination of an ordinary cap-and-trade scheme with European or American-style call and put options. Then, we quantify and discuss the advantages and disadvantages of the proposed hybrid schemes by investigating whether pre-set objectives (enforcement of permit price bounds and reduction of potential costs for relevant companies) can be accomplished while maintaining the original environmental targets.