Pricing CO2 Permits Using Approximation Approaches
24 Pages Posted: 23 Dec 2009
Date Written: October 4, 2009
Equilibrium models have been widely used in literature with the aim of showing theoretical properties of emission trading systems. This paper derives first a new equilibrium model. Second, it is shown that the theoretical permit price is related to changes in the expectation about how long regulated companies will need to exhaust the remaining permits. Third, by application to real data it demonstrates that emission trading systems are inherently prone to jumps.
Keywords: CO2 emission allowances, Equilibrium model, Approximation (Moment matching)
JEL Classification: C02, C61, C63, C65, G13
Suggested Citation: Suggested Citation