Research Seminar Environmental & Development Economics“Competitive Permit Storage and Market Design: An Application to the EU-ETS“Simon Quemin (Paris-Dauphine University)

21. November 2018

The Research Seminar Environmental & Development Economics welcomes Simon Quemin (Paris-Dauphine University), who will present his work on

“Competitive Permit Storage and Market Design: An Application to the EU-ETS”.

Place: Zentralbibliothek Recht, Rothenbaumchaussee 33 (Google Maps), Room Ro 33 BG 3/4
Hour: 12:15-13:45
We are looking forward to seeing you there!

Abstract
We develop a model of competitive inter-temporal emissions trading under uncertainty that features the core design elements of the EU-ETS to assess the recent market reform, essentially the market stability reserve (MSR). Modeling novelties include the introduction of myopia on the part of covered firms, of their ability to understand the interaction between the rational expectations equilibrium and MSR-driven supply shifts over time, as well as the implementation of a recursive procedure to solve for the certainty-equivalent market equilibrium solution. We calibrate the model on 2008-2017 market data to match observed price and banking paths. We find that by 2050 the MSR always raises both the permit price and abatement effort by the system, irrespective of the permit cancellation provision. Our results also suggest that the purported MSR responsiveness to permit demand shocks (e.g. recession, renewable deployment) would be limited, especially when firms are unable to anticipate future MSR impacts.