Grandfathering and the Endowment Effect An Assessment in the context of the Spanish National Allocation Plan
Name
2008-018.pdf
Size
155.27 KB
Format
Adobe PDF
Checksum (MD5)
7c2686cf2f1557da6df381b5f78cbf55
Author(s)
Ellerman, A. Denny
Reguant, Mar
Date Issued
2008
Series/Report no.
MIT-CEEPR;08-018WP
Abstract
In this paper, we test the Coase theorem in the context of carbon emissions trading. We investigate whether generating firms were influenced in their operational decisions by the initial amount of grandfathered emissions in the trial period of the European Union Emission Trading Scheme (EU-ETS). Theory suggests that under certain assumptions, the initial allocation should not affect production outcomes. We exploit a non-linearity in the allocation rule of CO2 allowances across coal plants in Spain to test for the relevance of the initial allocation to abatement outcomes. The evidence suggests no systematic relationship between the initial endowment and production decisions at the unit level.
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