The interplay between some of the tradable emission permits (TEP) markets implemented so far and the corresponding output market has raised some concern regarding non-competitive emission trading (see Montero, 2009 for a survey on the existing literature on this point). For example, according to Kolstad and Wolak (2008), the oligopolistic …rms participating in the Californian electricity market (CAISO) behaved strategically in the Los Angeles market for NOx emissions called RECLAIM (Regional Clean Air Incentives Market). Such …rms, shown to exert unilateral market power in the CAISO by Wolak (2003), were allocated 56% of total initial stock of permits. In the same line, Chen et al. (2006) compute equilibrium behavior considering the interaction between the NOx budget program and the Pennsylvania-New Jersey-Maryland (PJM) electricity market. Due to the high concentration of the PJM market, six large electricity generators alone account for 90% of emissions in the referred permits market. In this context, Chen et al. (2006)
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Abstract: Structural changes that were following the transformation from the centrally planed economy to market oriented one brought among other things new perceptions that of the hither to mainly reglected environmental issues. The Czech Republic as one of the few developed countries has achieved a tremendous decline in a emission production by huge investments. Because of the Kyoto protocol ratification by the EU, this issue is getting more important. The practical consequence of this ratification process is the creation of the unified European market for tradable emission permits that should be fully functioning by the year 2005. It is essential to fully understand basic theoretical principles of tradable emission permits market for homogenous and heterogeneous pollutions to achieve maximal benefits out of it.
of tradable emission permits or equivalently emission tax since it can minimize abatement costs when they differ between the regulated firms. For example, Borenstein (1988), Malueg (1990) and Sartzetakis (1997) showed that the tradable permits can increase social welfare in a sufficiently competitive production mar- ket with pollution when there are differences with respect to the abatement technologies among regulated firms. Due to its equivalence between tradable permits and emission taxes on the efficiency and welfare
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We argue for the creation of a carbon liabilities market to address climate change. Each period, countries would be made liable for their share of responsibility in current climate damage. Because liabilities could be traded like …nancial debt, robustness to strategic manipulations and e¢ciency ensue. Moreover, this decentralizes the choice of the rate by which countries discount future bene…ts and damage. Rather than being based on an expected discounted sum of future marginal damage (as with a carbon tax or tradable emission permits) our proposal relies only on observed realized damage and on the well-documented emission history of countries.
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This paper contributes to the debate on “windfall” profits in oligopolies subject to environmental regulation based on tradable emission permits. We propose a model of upstream-downstream strategic competition, in which the upstream market corresponds to the permits market and the downstream market corresponds to the output market. We assume that a leader in the permits market is able to set the price of permits, while in the output market we introduce strategic interaction by assuming Cournot competition. This model allows us to account for the effects of the technological linkages between the permits and the output market, showing that strategic interaction in the output market may give rise to an additional source of distortion in the permits market. In particular, strategic interaction in the output market endows both firms with incentives to adopt “rival’s cost-raising strategies” in the permits market: both firms (including the follower) try to take advantage of permits trading to reduce their abatement needs and become more competitive on the output market. As a result, all the firms, including the price-making firm and irrespective of the fact that it is a buyer or a seller, abate less than required by efficiency as the price of permits is always higher than firms’ marginal abatement cost.
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With the exception of mining and quarrying that occupied only a small portion of GDP, individual industries that showed a positive geometric percentage growth in unit labor cost belong mainly to the non-tradable services (construction; community, social and personal services; real estate; restaurant and wholesale) and some tradable services (insurance; land transport; other transport services; business services and financing). Those industries that experienced a fall in the unit labor cost are mainly the tradable goods and tradable service industries. Among the twenty individual industries, eleven of them showed an increase in the geometric average unit labor cost, and the average percentage increase is 3.79 percent. The large increase in construction pushed up this percentage. By contrast, the average of the nine industries with decreases in unit labor cost is –2.27 percent. The large percentage change can be due to the initial low wage paid to workers. In construction where sub-contracting is common, for example, a
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We further prove that no banking can never be an optimal solution for one agent (firm or country) when the discount rate is null -whether transaction costs are positive or nonexistent- neither can it be an equilibrium solution in the joint minimization problem. This result is very interesting and would be important to verify whether it would hold under different conditions; such as the case (i) where only one agent (either the buyer or seller) pays the transaction costs, (ii) the case of a functional form for the transaction cost different from the conventional concave transaction cost, and (iii) the case where we introduce a positive cost related to banking emission permits. Each one of those cases represent an interesting venue of future research, in addition to a more general setting with more than 2 firms or countries.
The purpose of this paper is to elucidate the resource rent distribution aspect of the Kyoto process. The paper focuses on the “battle for resource rents” with oil consuming countries on one side and oil producing countries on the other. Our analysis is carried out within the framework of a theoretical model of resource extraction over time. In particular, it is shown how CO2 emission caps may be used by the oil consuming countries, acting under the realm of the Kyoto process, to maximize the rent acquisition from oil producing countries and how the oil producing countries may constrain this possibility by exercising market power. The paper also compiles data and numerical results regarding the order of magnitudes of resource rents redistribution.
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Rules of financial institutions contain measures which need to be taken whenever the risk exposure exceeds the limit. Increasing capital reserves or closing out the position are examples of such measure. However, the Tradable Measure of Risk allows for a reduction to exposure in a different way: by entering a long position in a call option c on the Realized Risk with strike price K, such that:
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e¤ective manner. The …nancial investor should take the message that political decisions are likely to have a big impact on these markets for years to come. Within this general story, we are …nding that there are links between CER and EUA carbon markets and that information does ‡ow quickly between them (i.e. our lack of evidence for Granger causality when using daily data suggests that information is ‡owing at a rapid rate and markets are adjusting quickly) and that the (large liquid) market for EUA futures leads the price discovery process. For policymakers interested in designing a system where carbon permits are freely and e¢ ciently traded internationally, this is encouraging in that it sug- gests …nancial markets are potentially capable of functioning e¢ ciently across borders. It is likely that such links will only strengthen in the future as the design of carbon markets improves and uncertainties about institutional details lessened.
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The patchwork of laws designed to control air pollution from U.S. power plants has been criticized from a variety of different perspectives. Business groups argue that the laws are too complex and burdensome to industry. Environmentalists maintain that power plant emissions need to be further reduced because of their negative health effects, to combat global warming and to eliminate haze in our national parks. Economists claim that large emission reductions could be achieved rather cheaply by focusing control efforts on the decades-old power plants in the Midwest, but Midwesterners and their political representatives are understandably resistant to having to shoulder the costs.
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Conesa et al. (2002) introduce an informal goods sector into a Real Business Cycle model in order to explain cross-country differences in aggregate fluctuations. Produc- tion technology in the informal sector is different but the goods produced are tradable across sectors. The formal sector pays an exogenously specified wage premium over the informal sector but informal workers enjoy more leisure time. According to their model, the size of the underground economy is negatively related to the size of the wage premium between the two sectors. The existence and size of the informal sector affect the decision of workers to change sectors following a productivity shock. This mobility across sectors amplifies the response of formal output to external shocks which leads to a negative correlation between participation rate and aggregate fluctuations. The smaller the participation rate, the bigger the informal sector and the higher the effect of technological shocks.
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Many factors can dramatically affect the carbon price levels such as the climate, the international emissions policy, the design of market system and the financial crisis. So, the market prices of carbon emission permits fluctuate in an extremely complex way. For example, during the pilot phase of European Union Emission Trad- ing Scheme, the European Union allowances (EUAs) prices dropped from a peak of 30 Euro to near zero, be- cause of the regulation of “No Banking” and excessive releases of EUAs. The highly volatile carbon prices have brought a huge challenge to the market participants and regulators. Therefore, the purpose of this paper is to find out a way to depict the volatility characteristics of carbon prices accurately which may have a vital practical sig- nificance for the trading and risk management in the carbon market.
Figure 1 shows the impact on the total costs of emission reduction if unit emission reduction costs are either higher of lower than in the base case. 11 The case with higher unit emission reduction costs is described above. The case with lower unit emission reduction costs uses the inverse ratio – that is, the unit costs of the base case are multiplied with the ratio of base case costs to high case costs. In Figure 1, the costs for each of the five policy scenarios are normalized to unity for the unit costs calibrated to PRIMES. If unit costs are higher, total costs go up in all policy scenarios. Costs increase most under the Polish proposal, and least under the Irish proposal – as discussed above. If unit costs are lower, total costs go down in all policy scenarios. Costs decrease most under the Polish proposal, and almost as much under full trade. The current ETS is in the middle, and very close to costs under the Irish proposal. The costs decrease least under the Swedish proposal. The Polish proposal best exploits positive surprises in the non-ETS sectors, while the Irish proposal is most robust against negative surprises. However, scale is important too – the absolute loss of a negative surprise is 1.03% (0.36%) of GDP under the Polish (Irish) proposal, but the absolute gain of the positive surprise is 0.54% (0.28%) of GDP under the Polish (Irish) proposal. If both types of surprises were equally likely, a risk averse decision maker would prefer the Irish proposal.
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Activities requiring Section 10 permits include structures (e.g., piers, wharfs, breakwaters, bulkheads, jetties, weirs, transmission lines) and work such as dredging or disposal of dredged material, or excavation, filling, or other modifications to the navigable waters of the United States. In 1972, amendments to the Federal Water Pollution Control Act added what is commonly called Section 404 authority (33 U.S.C. 1344) to the program. The Secretary of the Army, acting through the Chief of Engineers, is authorized to issue permits, after notice and opportunity for public hearings, for the discharge of dredged or fill material into waters of the United States at specified disposal sites. The selection of such sites must be in accordance with guidelines developed by the U.S. Environmental Protection Agency (EPA) in conjunction with the Secretary of the Army; these guidelines are known as the 404(b)(1) Guidelines. The discharge of all other pollutants into waters of the U.S. is regulated under Section 402 of the Act, which supersedes the Section 13 permitting authority mentioned above.
Figure 1 8 shows the impulse response to a foreign output shock. In both models output and consumption respond positively to the shock but the variation in both variables is higher in the modi…ed model than in the standard model. This is so since in the standard model the foreign output a¤ects domestic output and consumption through domestic export and international risk sharing, respectively. In the modi…ed model the e¤ect is magni…ed by the e¤ect of foreign output on production of non-tradable goods. The initial impact of increasing foreign income decreases marginal costs in both sectors, and hence leads to de‡ationary pressure on the economy. On the other hand, the demand e¤ect of the foreign output will increase the competitiveness of the domestic economy. However, there are two opposing outcomes of this demand e¤ect. The export of the domestic economy increases and at the same time the cost of intermediate inputs increases, too. Both put upward pressure on domestic in‡ation which prompts the monetary authority to respond by raising interest rate which stabilizes output, consumption and in‡ation bringing the economy back to steady state.
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Notice that the larger the participating coalition, M , the larger the benefits from emissions reductions, Φ M,i T , and the smaller the harm; hence, the smaller the magnitude of the redistributive transfer, Γ M,i T . As a result, the more par- ticipants, the higher the incentives to participate. This observation hints at the possibility of a positive unraveling effect spurred by an initial “coalition of the willing”. Of course, without further assumptions on the heterogeneity of countries, one cannot say for sure how many countries will choose to partici- pate. Clearly, if countries are so heterogeneous that some countries expect no climate harm—or even benefit from climate change—those countries will refuse to participate in a scheme that asks for their contribution but will never benefit them, either through compensation (they will receive none) or by a reduction of the overall externality (they are unaffected by it, or may even benefit from it). Finally, the above analysis has ignored the fact that liabilities are tradable. Because trade is voluntary, it can only enhance participation.
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Ghironi and Melitz (2005, henceforth GM) apply the New New Trade theoretical tools in Melitz’s (2003, henceforth M) model to provide a microeconomic foundation for real exchange rate behaviors in international macroeconomics. Empirical …nding states that economies with higher GDP per capita (or higher produc- tivity) have higher prices. The fact behind that empirical result is probably that real exchange rate could be a¤ected by productivity shocks, referred as the Harrod-Balassa-Samuelson e¤ect (henceforth HBS e¤ect). Traditional explanation for HBS e¤ect is provided by Balassa and Samuelson who introduce an exogenous non-traded sector. If the tradable sector in a country experiences productivity growth, then the relative price of non tradable goods will rise, so that the aggregate price index in this economy will rise thus consumption based real exchange rate (This notion is de…ned in equation (1) below) decreases. In the GM dynamic model of trade, aggregate HBS e¤ect is generated through endogenous exporting decisions by heterogeneous …rm. The central result of GM is that a permanent increase in productivity results in a higher aggregate price index and a lower consumption based real exchange rate in the country that experiences such higher productivity relative to its trading partners.
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2.3. 1 To measure and improve an organization’s or activity's compliance with environmental legislation and regulations such as operating permits, air emission standards, effluent standards, waste management standards, transport regulations, etc, thus avoiding legal sanctions against an organization or activity or its management under prevailing laws and regulations.
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We provided the analysis of different policy timing with respect to the two environmental regulatory measures between tradable permits and emission tax in a mixed duopoly with a consumer-friendly firm. We examined the strategic choices on abatement technologies and showed that the equilibrium outcomes under both policies are equivalent in terms of permits price and tax rate only when the government can credibly commit its policy. Also, we showed that the profit of a consumer-friendly firm is always larger
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