Cap-and-Trade Programs Under Delayed Compliance

Resources for the Future DP 12-32

17 Pages Posted: 22 Aug 2012

See all articles by Makoto Hasegawa

Makoto Hasegawa

Graduate School of Economics, Kyoto University

Stephen W. Salant

University of Michigan; Resources for the Future

Date Written: July 23, 2012

Abstract

Previous analyses assumed that …firms must surrender permits as they pollute. If so, then the price of permits may remain constant over measurable intervals if the government injects additional permits at a ceiling price or may even collapse if more permits are injected through an auction (Hasegawa and Salant 2012). However, no cap-and-trade program actually requires continual compliance. The three federal bills and California'’s AB-32, for example, instead require that …firms surrender permits only periodically to cover their cumulative emissions since the last compliance period. Anticipated injections of additional permits during the compliance period should have different effects than under continual compliance. We develop a methodology for analyzing the effects of such permit injections. Using it, we explain why the sales provisions of one federal bill (Kerry-Lieberman) might generate a speculative attack in the permit market and why one provision of AB-32 may undermine the very existence of an equilibrium.

Keywords: emissions trading, marketable permits, price collar, safety valve, price ceiling, price ‡floor

JEL Classification: Q54, Q58

Suggested Citation

Hasegawa, Makoto and Salant, Stephen W., Cap-and-Trade Programs Under Delayed Compliance (July 23, 2012). Resources for the Future DP 12-32, Available at SSRN: https://ssrn.com/abstract=2133339 or http://dx.doi.org/10.2139/ssrn.2133339

Makoto Hasegawa

Graduate School of Economics, Kyoto University ( email )

Yoshida-Honmachi, Sakyo-ku
Kyoto, 606-8501
Japan

HOME PAGE: http://sites.google.com/view/makoto-hasegawa/

Stephen W. Salant (Contact Author)

University of Michigan ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
313-764-2370 (Phone)
313-764-2769 (Fax)

Resources for the Future ( email )

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