Expecting the Unexpected: Emissions Uncertainty and Environmental Market Design

By S. Borenstein, James Bushnell, F. Wolak, Matthew Zaragoza-Watkins. The American Economic Review, 2019

203 citations recorded by the source corpus.

We study potential equilibria in California’s cap-and-trade market for greenhouse gases (GHGs) based on information available before the market started. We find large ex ante uncertainty in business-as-usual emissions and in the abatement that might result from non-market policies, much larger than the reduction that could plausibly occur in response to an allowance price within a politically acceptable range. This implies that the market price is very likely to be determined by an administrative price floor or ceiling. Similar factors seem likely to be present in other cap-and-trade markets for GHGs. (JEL D47, D81, Q54, Q58, R11)

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/b7f23d50e0de1bdb3a2611b6bf16c28854658756

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In Economics and Econometrics

In Renewable Energy, Sustainability and the Environment

Citations in the corpus

The design of environmental markets: What have we learned from experience with cap and trade? (2017, background): “Recent work (Borenstein et al., 2016) suggests that complementary policies left so little scope for response to changes in allowance prices that those prices are very likely to be determined by an administrative price floor or ceiling.”