Abstract
In this paper we analyze how restricting intertemporal trading by prohibiting borrowing of emissions permits affects the ability of a dominant agent to exploit its market power. We show that the monopolist could take advantage of the constraint on borrowing by not distributing the sale of permits cost-effectively across periods. Furthermore, we show that a constant present-value price over time does not imply a cost- effective distribution of abatement (permit sales) across periods.
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Comments from Odd Godal, Michael Hoel, Steinar Holden, Lynn P. Nygaard Asbjørn Aaheim and an anonymous referee are highly appreciated.
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Hagem, C., Westskog, H. Intertemporal Emission Trading with a Dominant Agent: How does a Restriction on Borrowing Affect Efficiency?. Environ Resource Econ 40, 217–232 (2008). https://doi.org/10.1007/s10640-007-9149-9
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DOI: https://doi.org/10.1007/s10640-007-9149-9