EPA's new emissions trading mechanism : a laboratory evaluation : a comment
Working paper
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http://hdl.handle.net/11250/180061Utgivelsesdato
1998Metadata
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- Discussion Papers [1002]
Sammendrag
In the US tradable SO2 permit scheme 97.2 per cent of the permits are grandfathered annually to
electricity utilities. The remaining 2.8 per cent are withheld and offered for sale at the Environmental
Protection Agency (EPA) auction. Also, the electricity utilities may tender permits for sale both at this
auction as well as on a complementary permit market. Cason and Plott [3] recommend that the EPA
seriously consider reforming the present auction procedure for SO2 permit trading. They provide
experimental evidence of downward biased auction prices that understate the marginal cost of
emissions control. Our comparison with available empirical data shows that the complementary
market for SO2 permits disciplines the auction inasmuch as the auction and market prices are not
significantly dissimilar. This fact and the extent of conducted permit trade render improbable the
assertion that the EPA auction price differs from the true marginal abatement cost. Hence, the policy
relevance of the EPA auction's alleged faults may be negligible.
Keywords: US Clean Air Act Amendments, tradable SO2 permits, experimental economics.