This dissertation presents an equilibrium framework for analyzing the impact of cap-and-trade regulation on transmission-constrained electricity market. The cap-and-trade regulation of greenhouse gas emissions has gained momentum in the past decade. The impact of the regulation and its efficacy in the electric power industry depend on interactions of demand elasticity, transmission network, market structure, and strategic behavior of firms. I develop an equilibrium model of an oligopoly electricity market in conjunction with a market for tradable emissions permits to study the implications of such interactions.
Financial impacts of 'cap and trade'
The Case for Cap-And-Trade
Trading enables entities that can reduce emissions at lower cost to be paid to do so by higher-cost emitters, thus lowering the economic cost of reducing emissions. Key words : Climate change, greenhouse gases; GHGs; carbon pricing: carbon tax; market mechanism; carbon markets; cap and trade; emissions trading system; ETS; covered entities; emission units, allowances, offsets; reporting period; banking; safeguard; polluter pays; externalities. Download: Carbon Markets. By putting a price on carbon emissions, carbon market mechanisms, as well as other carbon pricing mechanisms such as carbon taxes, help to internalize the environmental and social costs of carbon pollution, encouraging investors and consumers to choose lower-carbon paths. This entry will focus on the working modalities and establishment of ETSs.
The Case for (and Against) Cap and Trade
There is broad consensus among those engaged in climate policy analysis—from academia, government, NGOs, and industry—that any domestic climate policy should include, at its core, market-based policy instruments targeting greenhouse gas GHGs emissions, because no other approach can do the job and do it at acceptable cost. Recent concern, however, about the role of financial markets—and specific fraudulent investment vehicles—in the recent recession have raised questions among the public about the efficacy and functioning of markets. Not surprisingly, some have questioned the wisdom of employing market mechanisms to tackle climate change. When it comes to climate change and environmental issues more generally, environmental economists recognize that the source of many problems is not markets per se, but the absence of markets for environmental goods and services, such as clean air and water.
To paraphrase toothpaste advertising, it might be said that 9 out of 10 economists agree: putting a price on carbon dioxide emissions can help bring those emissions down. Forty-some-odd years later, government and academic analyses have provided a solid sense of the costs of climate change. But how the price of carbon is set, and who sets it, are hardly settled. Carbon taxes and cap-and-trade are the two big ideas U. Carbon taxes put an initial financial burden on entities that pollute.