Clean technology adoption and its influence on tradeable emission permit prices.

In this paper we give an example in which the price of tradeable emission permits increases despite firms' adoption of a less polluting technology. This is in contrast with Montero (2002) and Parry (1998), among others. If two Counot players switch to a cleaner technology, the price for permits may increase due to an increase in the net demand for permits and a decrease in net supply of permits after the clean technology is adopted. This is only the case when output demand is elastic.environmental innovation, tradable emission permits, Cournot interaction

Environmental innovation under Cournot competition

In this paper, we address the incentives to invest in environmental innovation of enterprises that exercise market power in the output market and also buy and sell pollution permits. Differently from the existing literature, using a market approach we explicitly model the interaction between the output market, where firms play A la Cournot, and the permits market. We find that, in the new equilibrium firms behave symmetrically, that is, they either both innovate to protect their market share in the output market or they both choose not to innovate. Whether the innovation equilibrium arises or not depends on the output demand and on the productivity enhancement and not on the distribution of permits among firms. Finally, we show that, under this market configuration, collusion can be welfare enhancingenvironmental innovation, tradable permits, interaction à la Cournot

Environmental innovation under Cournot competition

In this paper, we address the incentives to invest in environmental innovation of enterprises that exercise market power in the output market and also buy and sell pollution permits. Differently from the existing literature, using a market approach we explicitly model the interaction between the output market, where firms play à la Cournot, and the permits market. We find that, in the new equilibrium firms behave symmetrically, that is, they either both innovate to protect their market share in the output market or they both choose not to innovate. Whether the innovation equilibrium arises or not depends on the output demand and on the productivity enhancement and not on the distribution of permits among firms. Finally, we show that, under this market configuration, collusion can be welfare enhancing.environmental innovation, tradable permits, interaction à la Cournot

Emission permits trading and downstream strategic market interaction

This paper studies inefficiencies arising in oligopolies subject to environmental regulation based on tradable emission permits. We propose a duopoly model of upstream–downstream strategic competition: in the permits market a leader sets the price, whereas in the output market Cournot competition occurs. We find that strategic interaction in the output market gives rise to an additional distortion in the permits market where both firms adopt ‘rival's cost-rising’ strategies to gain a competitive advantage in the output market. As a result, the price of permits is always higher than firms' marginal abatement costs

Environmental innovation under Cournot competition

In this paper, we address the incentives to invest in environmental innovation of enterprises that exercise market power in the output market and also buy and sell pollution permits. Differently from the existing literature, using a market approach we explicitly model the interaction between the output market, where firms play A la Cournot, and the permits market. We find that, in the new equilibrium firms behave symmetrically, that is, they either both innovate to protect their market share in the output market or they both choose not to innovate. Whether the innovation equilibrium arises or not depends on the output demand and on the productivity enhancement and not on the distribution of permits among firms. Finally, we show that, under this market configuration, collusion can be welfare enhancin

Market design in wholesale electricity markets

As European countries move towards complete unbundling in electricity markets, some issues regarding market design are still under discussion. In particular, which market configuration would give the right incentives to promote efficiency and reduce final prices. In this paper we analyze a design in which prices are binding for more than one market period (like in the former British system or in the Australian system) and we compare price equilibria and collusive incentives under proportional and efficient rationing. To do so, we build on Le Coq (2002) and Crampes and Creti (2003) framework to account for stochastic demand. Our results suggest that with stochastic demand, incentives for strategically withholding capacity are still present but incentives to agree on market share are mitigated by efficient rationing.electricity markets, market design, pricing behavior, stochastic demand

Market design in tradable emissions permits markets

Firms producing a polluting good that is subject to environmental regulation with tradable emissions permits base their production, pollution abatement and permit trading decisions on their expectations about permit prices and goods' market conditions. Firms can only rely on their permit price expectations for decision-making when the market for tradable permits is stable (i.e. low volatility) and is characterized by a transparent and efficient price-formation mechanism. In the first part of this thesis we assess the determinants of short-run price dynamics and market stability, as well as the market microstructure of tradable permits markets as a function of (and in relation to) the underlying goods market. The latter analysis is undertaken in chapter 2 using transactions data for the U.S. Acid Rain market over the period 1995-2005, cross-referenced with regional electricity markets conditions over the same period. The determinants of short-run price dynamics and market stability are analyzed in chapter 3: using the December 2008 future prices registered in the EU emission trading scheme over the period 2005-2007, we find that the release of information regarding the pollution constraints imposed by the EU Commission undermines market stability. In the second part of this thesis we complete the assessment of tradable permits markets by studying production, abatement and trading decisions themselves. To this end, we adapt the traditional successive market theory to account for the specific characteristics of the technological linkage between the permits market (upstream) and an oligopolistic goods market (downstream). In this context we show how strategic firms are able to manipulate the permit price and price path, as well as which market design should be implemented by the regulator to preserve efficiency and increase total welfare.Pour les entreprises qui produisent un bien polluant assujetti à une réglementation environnementale établie sur les permis d'émission négociables, les décisions concernant la production, la réduction de la pollution et les échanges de permis sont fondées sur leurs anticipations du prix des permis et sur les conditions de marché pour ce bien. Dans la prise de décision, les entreprises ne peuvent s'appuyer sur leurs estimations du prix des permis que si le marché des permis négociables est stable (i.e. faiblement volatile) et caractérisé par un mécanisme transparent et efficace de formation des prix. Dans la première partie de cette thèse, nous identifions les déterminants de la dynamique des prix de court terme et de la stabilité du marché ainsi que la microstructure du marché des permis échangeables en fonction du marché sous-jacent des biens. Cette dernière analyse est menée dans le chapitre 2 à partir des données concernant les transactions opérées sur le marché des pluies acides aux Etats Unis (US Acid Rain market) sur la période 1995-2005. Ces données sont recoupées avec les conditions régionales du marché de l'électricité au cours de la même période. Les déterminants de la dynamique des prix de court terme et de la stabilité du marché sont analysés dans le chapitre 3: en utilisant les prix futurs Décembre 2008 du système européen d'échange des émissions (EU-ETS) sur la période 2005-2007, nous constatons que la divulgation des informations au sujet des contraintes environnementales imposées par la Commission Européenne ébranle la stabilité du marché. Dans la deuxième partie de cette thèse, nous complétons l'analyse des marchés des permis négociables par l'étude des décisions de production, de réduction de la pollution et d' échanges des permis. Dans ce but, nous modifions la modélisation traditionnelle de marchés successifs pour tenir compte de la spécificité des liens technologiques entre le marché des permis (en amont) et le marché oligopolistique des biens (en aval). Dans ce contexte, nous montrons comment les entreprises stratégiques sont capables de manipuler le prix des permis et son évolution. Nous étudions finalement la structure du marché qui devrait être mis en œuvre par l'organisme régulateur afin de garantir l'efficacité du marché et accroître le bien-être total.(ECON 3) -- UCL, 200

Market design in wholesale electricity markets

As European countries move towards complete unbundling in electricity markets, some issues regarding market design are still under discussion. In particular, which market configuration would give the right incentives to promote efficiency and reduce final prices. In this paper we analyze a design in which prices are binding for more than one market period (like in the former British system or in the Australian system) and we compare price equilibria and collusive incentives under proportional and efficient rationing. To do so, we build on Le Coq (2002) and Crampes and Creti (2003) framework to account for stochastic demand. Our results suggest that with stochastic demand, incentives for strategically withholding capacity are still present but incentives to agree on market share are mitigated by efficient rationing

Car-fuel poverty: determinants and policy implications for France

In the face of inflation following the Ukrainian crisis, several European governments implemented a generalized gasoline subsidy. In contrast, the reduction of fossil-fuel consumption is crucial to mitigate the current energy and climate crises. Fuel consumption for transport increases with income, making rich households the main beneficiaries of generalized subsidies. In this context, a thorough investigation of the nature of vulnerability to rising gasoline prices is needed to formulate targeted policies. Herein, we contribute in this line for the case of France. Firstly, we develop three metrics of car-fuel poverty. Secondly, we use multivariate statistic analysis to identify car-fuel-poor household profiles. Then, we estimate the socioeconomic determinants of such vulnerability. We find that, aside from income, household composition, region, access to public transport, and house ownership significantly impact the probability of being car-fuelpoor. Then, using our results, we evaluate the impact of recent subsidies implemented in France and suggest alternative targeted policies. We find that the policies that have been implemented are regressive and incur in inclusion and exclusion errors. Instead, a targeted subsidy fully compensating the car-fuel-poor would have been efficient implying, at the same time, important government savings