Template-type: ReDIF-Paper 1.0
Author-Name: Cameron Hepburn
Author-Email: cameron.hepburn@economics.ox.ac.uk
Author-Workplace-Name: School of Enterprise and the Environment, Oxford University
Author-Name: John K.-H. Quah
Author-Email: john.quah@economics.ox.ac.uk
Author-Workplace-Name: Department of Economics, Oxford University
Author-Name: Robert A. Ritz
Author-Email: robert.ritz@economics.ox.ac.uk
Author-Workplace-Name: Department of Economics, Oxford University
Title: Emissions Trading with Profit-Neutral Permit Allocations
Abstract:  This paper examines the operation of an emissions trading scheme (ETS) in a 
Cournot oligopoly. We study the impact of the ETS on industry output, price,
costs, emissions, and profits. In particular, we develop formulae for the number of
emissions permits that have to be freely allocated to firms in order to neutralize
any adverse impact the ETS may have on profits. These formulae tell us that the
profit impact of the ETS is usually limited. Indeed, under quite general conditions,
industry profits are preserved so long as firms are freely allocated a fraction of their
total demand for permits, with this fraction being lower than the industry's Herfindahl
index.
Keywords: Emissions trading, permit allocation, profit-neutrality, cost pass-through,
abatement, grandfathering
Length: 41 pages
Creation-Date: 2008-03-11
Number: 2008-W12
File-URL: http://www.nuffield.ox.ac.uk/economics/papers/2008/w12/HQR2-8.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:0812