Hostname: page-component-cd9895bd7-fscjk Total loading time: 0 Render date: 2024-12-26T02:32:00.445Z Has data issue: false hasContentIssue false
  • English
  • Français

An Experimental Analysis of Auctioning Emission Allowances Under a Loose Cap

Published online by Cambridge University Press:  15 September 2016

William Shobe ,
Karen Palmer ,
Erica Myers ,
Charles Holt ,
Jacob Goeree  and
Dallas Burtraw
William Shobe
Affiliation:
Center for Economic and Policy Studies and Charles
Karen Palmer
Affiliation:
Resources for the Future in Washington, D.C.
Erica Myers
Affiliation:
Center for Economic and Policy Studies and Charles
Charles Holt
Affiliation:
Department of Economics at the University of Virginia in Charlottesville, Virginia
Jacob Goeree
Affiliation:
University of Zurich in Switzerland
Dallas Burtraw
Affiliation:
Resources for the Future in Washington, D.C.
Get access Rights & Permissions [Opens in a new window]

Abstract

The direct sale of emission allowances by auction is an emerging characteristic of cap-and-trade programs. This study is motivated by the observation that all of the major implementations of cap-and-trade regulations for the control of air pollution have started with a generous allocation of allowances relative to recent emissions history, a situation we refer to as a “loose cap.” Typically more stringent reductions are achieved in subsequent years of a program. We use an experimental setting to investigate the effects of a loose cap environment on a variety of auction types. We find that all auction formats studied are efficient in allocating emission allowances, but auction revenues tend to be lower relative to competitive benchmarks when the cap is loose. Regardless of whether the cap is tight or loose, the different auction formats tend to yield comparable revenues toward the end of a series of auctions. However, aggressive bidding behavior in initial discriminatory auctions yields higher revenues than in the other auction formats, a difference that disappears as bidders learn to adjust their bids closer to the cut-off that separates winning and losing bids.

Keywords

auctioncarbon dioxidegreenhouse gasesallowance tradingRegional Greenhouse Gas InitiativeRGGIcap and trade
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 39 , Issue 2 , April 2010 , pp. 162 - 175
Copyright
Copyright © 2010 Northeastern Agricultural and Resource Economics Association 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Burtraw, D. 2000. “Innovation Under the Tradable Sulfur Dioxide Emission Permits Programme in the U.S. Electricity Sector.” Resources for the Future Discussion Paper No. 00–38, Resources for the Future, Washington, D.C.Google Scholar
Burtraw, D., Evans, D.A., Krupnick, A., Palmer, K., and Toth, R. 2005. “Economics of Pollution Trading for SO2 and NOx.” Annual Review of Environment and Resources 30: 253–289.Google Scholar
Burtraw, D., Goeree, J., Holt, C., Myers, E., Palmer, K., and Shobe, W. 2009. “Collusion in Auctions for Emissions Permits: An Experimental Analysis.” Journal of Policy Analysis and Management 28(4): 672–691.Google Scholar
California Air Resources Board. 2008. “Climate Change Proposed Scoping Plan: A Framework for Change.” Available at http://www.arb.ca.gov/cc/scopingplan/document/psp.pdf (accessed March 29, 2010).Google Scholar
Carlson, C., Burtraw, D., Cropper, M., and Palmer, K. 2000. “SO2 Control by Electric Utilities: What Are the Gains from Trade?” Journal of Political Economy 108(6): 1292–1326.CrossRefGoogle Scholar
Ellerman, A.D., and Buchner, B.K. 2007. “The European Union Emissions Trading Scheme: Origins, Allocation, and Early Results.” Review of Environmental Economics and Policy 1(1): 66–87.CrossRefGoogle Scholar
Ellerman, A.D., Joskow, P.L., Schmalensee, R., Bailey, E.M., and Monteiro, P.K. 2000. Markets for Clean Air: The U.S. Acid Rain Program. New York: Cambridge University Press.Google Scholar
Environment Northeast. 2008. “Emissions Trends and the Inaugural Allowance Auction: Regional Greenhouse Gas Initiative.” Available online at http://www.env-ne.org/public/resources/pdf/ENE_RGGI_Emissions_and_Auction_Rpt_090308_final.pdf (accessed September 16, 2008).Google Scholar
Evans, D., and Kruger, J. 2007. “Where's the Sky's Limit? Lessons from Chicago's Cap and Trade Program.” Environment 49(2): 18–32.Google Scholar
Harrington, W., Morgenstern, R.D., and Nelson, P. 2000. “On the Accuracy of Regulatory Cost Estimates.” Journal of Policy Analysis and Management 19(2): 297–322.Google Scholar
Holt, C., Shobe, W., Burtraw, D., Palmer, K., and Goeree, J.K. 2007. “Auction Design for Selling CO2 Emission Allowances under the Regional Greenhouse Gas Initiative.” RGGI Report, New York State Energy Research and Development Authority, Albany, NY.CrossRefGoogle Scholar
Kerr, S., and Newell, R.G. 2003. “Policy-Induced Technology Adoption: Evidence from the U.S. Lead Phasedown.” Journal of Industrial Economics 51(3): 317–343.Google Scholar
New Carbon Finance. 2007. “Regional Greenhouse Gas Allowances: Going, Going, Gone?” North America Research Note (November 2007): 1–13.Google Scholar
Point Carbon Research. 2007. “Emissions Trading in the U.S.: Is RGGI Over-Allocated?” Carbon Market Analyst. Available at http://www.pointcarbon.com/research/cmana/cmana/1.260304 (accessed March 29, 2010).Google Scholar
Porter, D., Rassenti, S., Shobe, W., Smith, V., and Winn, A. 2009. “The Design, Testing, and Implementation of Virginia's NOx Allowance Auction.” Journal of Economic Behavior and Organization 69(2): 190–200.Google Scholar
Ruth, M., Ross, K., Hultman, N., Mauer, J., Valencia, I.D., Herrmann, N., Palmer, K., Paul, A., Myers, E., Hobbs, B., Irani, D., Michael, J., and Chen, Y. 2008. “The Role of Energy Efficiency Spending in Maryland's Implementation of the Regional Greenhouse Gas Initiative.” A study commissioned by the Maryland Department of the Environment and conducted by the Center for Integrative Environmental Research at the University of Maryland. Available at http://www.cier.umd.edu/RGGI/CIER_RGGI_Energy_Efficiency_Spending_Study%5B1%5D.pdf (accessed March 29, 2010).Google Scholar
Smith, V. 1967. “Experimental Studies of Discrimination versus Competition in Sealed-Bid Auction Markets.” Journal of Business Research 40(1): 56–84.Google Scholar
U.S. Environmental Protection Agency. 2007. “Acid Rain and Related Programs: 2006 Progress Report.” Report No. EPA-430-R-07-011, Clean Air Markets Division, Office of Air and Radiation, U.S. Environmental Protection Agency, Washington, D.C.Google Scholar