Dynamic supply adjustment and banking under uncertainty in an emission trading scheme: The market stability reserve
Year: 2019
Type: article
Abstract: We study the impact of a supply management mechanism (SMM) similar to the Market Stability Reserve proposed in 2015 which preserve the overall emissions cap and we comment on the recent cap-changing amendments. We provide an analytical description of the conditions under which an SMM alters the emissions abatement paths, affecting the expected length of the banking period and its variability. While abatement strategies of risk neutral firms solely depend on the former, for risk-averse firms changes in the latter would lead to higher risk premia, accelerated depletion of the bank and, consequently, further reduction of abatement and allowance prices. Cancellation of part of the reserve could partially outweigh the effect on risk premia sustaining allowance prices.
Source: European Economic Review
Authors: Sascha Kollenberg, Luca Taschini
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
SDG: Climate action
Open Access status: hybrid
Estimated APC paid: $1,950
Funders: Grantham Foundation for the Protection of the Environment, European Commission, Bundesministerium für Bildung und Forschung, Universität Duisburg-Essen, Stiftung Mercator, Centre for Climate Change Economics and Policy, University of Leeds, Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science, Economic and Social Research Council
OpenAlex ID: W2293366514