Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/16610
Appears in Collections:Economics Journal Articles
Peer Review Status: Refereed
Title: On Emissions Trading and Market Structure: Cap-and-Trade versus Intensity Standards
Authors: de, Vries Frans
Dijkstra, Bouwe R
McGinty, Matthew
Contact Email: f.p.devries@stir.ac.uk
Keywords: Cap-and-trade
Emissions trading
Imperfect competition
Industrial change
Intensity standards
Pollution control
Issue Date: Aug-2014
Publisher: Springer
Citation: de Vries F, Dijkstra BR & McGinty M (2014) On Emissions Trading and Market Structure: Cap-and-Trade versus Intensity Standards, Environmental and Resource Economics, 58 (4), pp. 665-682.
Abstract: This paper examines the interdependence between imperfect competition and emissions trading. We particularly analyze the long run equilibrium in a two-sector (‘clean' and ‘dirty') model with Cournot competition among firms who face a fixed cost of production. The clean sector is defined as the sector with the highest long run cost margin on emissions. We compare the welfare implications of a cap-and-trade scheme with an emissions trading scheme based on relative intensity standards. It is shown that a firm's long run equilibrium output in the clean or dirty sector does not depend on the emissions trading format, but only depends on the fixed cost of producing in the respective sector. Intensity standards can result in clean firms selling allowances to dirty firms, or dirty firms selling to clean firms. The former outcome yields higher welfare. It is demonstrated that cap-and-trade outperforms the intensity-based trading scheme in terms of long run welfare with free entry and exit. With intensity standards the size of the clean sector is too large.
Type: Journal Article
URI: http://hdl.handle.net/1893/16610
DOI Link: http://dx.doi.org/10.1007/s10640-013-9715-2
Rights: The publisher does not allow this work to be made publicly available in this Repository. Please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study.
Affiliation: Economics
University of Nottingham
University of Wisconsin-Madison

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