Pollution permits, strategic trading and dynamic technology adoption

Arbeitspapier

This paper analyzes the dynamic incentives for technology adoption under a transferable permits system, which allows for strategic trading on the permit market. Initially, firms can both invest in low-emitting production technologies and trade permits. In the model, technology adoption and allowance prices are generated endogenously and are inter-dependent. It is shown that the non-cooperative permit trading game possesses a pure-strategy Nash equilibrium, where the allowance value reflects the level of uncovered pollution (demand), the level of unused allowances (supply), and the technological status. These conditions are also satisfied when a price support instrument (dubbed European-cash-for-permits), which is contingent on the adoption of the new technology, is introduced. Numerical investigation confirms that this policy generates a floating price floor for the allowances, and it restores the dynamic incentives to invest. Given that this policy comes at a cost, a criterion for the selection of a self-financing policy (based on convex risk measures) is proposed and implemented.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2011-042

Classification and Topics

• Classification: Wirtschaft
• Subject: dynamic regulation ; emission permits ; environment ; self-financing policy ; technology adoption ; Emissionsrechte ; Emissionshandel ; Umweltschutzinvestition ; Technologiewahl ; Nichtkooperatives Spiel ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Moreno-Bromberg, Santiago ; Taschini, Luca
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/56671
• Last update: 10.03.2025, 11:43 AM CET