Credit for Early Action Policies in Emissions Trading Systems under Different Market Structures

• Main Authors: Hsin-Yi Lin, 林欣怡
• Other Authors: Tsung-Chen Lee
• Format: Others
• Language: en_US
• Online Access: http://ndltd.ncl.edu.tw/handle/44700730147349046518

碩士 === 國立臺北大學 === 經濟學系 === 96 === After Kyoto Protocol is formally in effect, the non-Annex B countries’ concern about being subsumed in post-Kyoto Protocol has rising. For this reason, whether to encourage firms to initiate their abatement actions earlier has becoming an important issue in environmental policy design and relevant academic research. Credit for early action (CEA) is a policy which aims at early emissions reduction. Under such a policy, the government would allocate emission allowances based on firms’ abatement levels prior to the compliance period. The purpose of this thesis is to analyze the optimal designs of CEA policies in emissions trading systems under different market structures. The effects of CEA policy on equilibria and efficiency of the emissions trading system are also explored. It is shown that the optimal design of CEA policy would not be influenced by the market structure of emissions trading system given a particular national emission cap. The amounts of emissions allowances allocated to firms for their early carbon abatements are the same under perfect and imperfect competitive emissions trading systems. However, the equilibrium trading outcomes and the efficiency may still be different under the two systems with the same CEA policy. The relative magnitudes of the equilibrium allowance price hinge on the numbers of emission allowances available to the price-taking firms. The fewer the numbers of emission allowances available to the price-taking firms, the higher the equilibrium allowance price will be and vice versa. Then, it is the allowance price that determines the relative magnitudes of the price-taking firms’ optimal abatement levels, the amounts of emission allowances that they receive from the government and those that they exchange in the market when the trading system changes from perfect competitive into imperfect competitive. Yet, the corresponding variations for the dominant firms cannot be told by the difference of the allowance price. Precisely, if the equilibrium allowance price increases as the trading system changes from perfect competitive into imperfect competitive, the price-taking firms’ marginal benefits of abatement in each period increase. Therefore, their optimal abatement levels in both periods and the amount of emission allowances that they receive from the government increase. For price-taking firms that are buyers of emissions allowances, the amount of emission allowances that they exchange in the market would decrease. Contrarily, for price-taking firms that are sellers of emissions allowances, the amount that they exchange would increase. Finally, we compare the equilibria of emissions trading system under the CEA policy and the grandfathering rule to analyze the influence of the rule of emission allowances allocation on the efficiency of the trading system. It is found that the total compliance costs for meeting the national carbon emission cap are minimized no matter what rule of emission allowances allocation is in the perfect competitive trading system. In the imperfect competitive trading system, the dominant firms would have incentive to manipulate the allowance price once the amounts of emission allowances allocated to them are different from those that they demand in equilibrium, and hence the efficiency loss occur, on the other hand. If there is efficiency loss when either of the rules of emission allowances allocation is undertaken, the relative efficiency would depend on firms’ carbon abatement decisions under different rules. Thus, it is uncertain whether adopting the CEA policy is more efficient for the government to meet the national carbon emission cap in this case.