Cap-and-Trade Properties under Different Scheme Designs
Name
2009-019.pdf
Size
222.57 KB
Format
Adobe PDF
Checksum (MD5)
08be36ea7ac23320b3535e915ce26c7c
Author(s)
Taschini, Luca
Grüll, Georg
Date Issued
November 2009
Publisher
MIT Center for Energy and Environmental Policy Research
Series/Report no.
MIT-CEEPR (Series);2009-019
Abstract
This paper examines the key design mechanisms of existing and proposed cap-and-trade markets. First, it is shown that the hybrid systems under investigation (safety-valve with offsets, price floor using a subsidy, price collar, allowance reserve, and options offered by the regulator) can be decomposed into a combination of an ordinary cap-and-trade scheme with European- or American-style call and put options. Then, we quantify and discuss the advantages and disadvantages of the proposed hybrid schemes by investigating whether pre-set objectives (enforcement of permit price bounds and reduction of potential costs for relevant companies) can be accomplished while maintaining the original environmental targets.
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