Rate of Return Regulation and Emission Permits Trading under Uncertainty

Zhang, Fan ; Huang, Tao

World Bank, Washington, DC

关键词: ALLOWANCE;    TOTAL EMISSIONS;    ALLOCATION OF ALLOWANCES;    UNCERTAINTIES;    PUBLIC UTILITIES;   

DOI  :  10.1596/1813-9450-7343
RP-ID  :  WPS7343

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper analyzes the dynamic effectsof rate-of-return regulation on firms’ emissions compliancebehavior when the price of emissions permits is uncertain.The paper shows that uncertainty regarding the price ofpermits would motivate a regulated firm to adopt a moreself-sufficient strategy and would reduce thecost-effectiveness of emission allowance trading. Whenallowance transactions are treated as capital investments,uncertainty could reverse the classic Averch-Johnson effect,so that a regulated firm would purchase fewer permits in theex ante period than its unregulated counterpart. Theseresults are driven by the asymmetric impact of a pricechange on the expected marginal value of allowances underrate-of-return regulation. A wider variation in the permitprice and a decline in the regulated rate of return wouldamplify the asymmetry. These results have implications forthe efficiency of the proposed global carbon trading system.