Cap-and-trade Properties under Different Hybrid Scheme Designs
Cap-and-trade Properties under Different Hybrid Scheme Designs / G. Gruell and L. Taschini. Journal of Environmental Economics and Management, 61(1), 2011, pp. 107-118.
draft : http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1518102
link to the journal : http://www.sciencedirect.com/science/journal/00950696
This paper examines the key design mechanisms of existing and proposed cap-and-trade markets. First, it is shown that the hybrid systems under investigation (safety-valve with offsets, price floor using a subsidy, price collar, allowance reserve, and options offered by the regulator) can be decomposed into a combination of an ordinary cap-and-trade scheme with European or American-style call and put options. Then, we quantify and discuss the advantages and disadvantages of the proposed hybrid schemes by investigating whether pre-set objectives (enforcement of permit price bounds and reduction of potential costs for relevant companies) can be accomplished while maintaining the original environmental targets. (© authors)