Equilibrium with a Market of Permits

In this paper we present the main results of three original studies on the equilibrium with a market of tradeable permits in a static framework. In first study, we have considered an international equilibrium of two countries which depend on the quantity of permits to each country. The allocation is efficient if and only if it is proportional to efficient labor. A redistribution in favor of the less developed country implies a redistribution to this country but leads to a dilemma with efficiency. In the second study, we analyze the consequences of the choice between giving free permits to firms and other possibilities. We show that for equalizing incomes of production factors with there marginal productivities, each factor should receive a quantity of free permits proportional to its contribution to production. In the third study, we consider the partial equilibrium of an industry where each firm is characterized by a parameter combining production efficiency and pollution effect. We define a theoretical indicator of environmental efficiency and we analyze its properties

Comparing Competitive Equilibria with Equilibria of Labor-Managed and Capital-Managed Economies in OLG Models

This paper compares a private ownership (competitive) economy, a labormanaged economy and a capital-managed economy in an overlapping-generations framework. Under standard and rather weak assumptions, the sets of equilibria for the two first economies are identical, in line with a result already shown in a static setting. We also prove that the set of competitive equilibria are included in the set of equilibria of capital-managed economies, but the converse is not true. However, using some smoothness assumptions, we show that an equilibrium of a capital-managed economy may be a competitive equilibrium.OLG models, Economic systems, Labor-management, Capitalmanagement

Competitive Markets for Pollution Permits: Impact on Factor Income and International Equilibrium

We are interested in the impact of pollution permits on wages and profits. We analyze important consequences of introducing a market of pollution permits. A fundamental issue concerns the initial allocation of such permits: should they be allocated freely by grandfathering or be auctioned. The international symmetric case allows us to capture the essence of the problem on income factor. We show that allocating permits to factors in proportion of their contribution to production leads to an efficient (neoclassical) distribution. Considering the international asymmetric case, we show that a permit market does not modify the competitive world equilibrium without permits when the total allocation is large enough. When it is not, if allocation of permits is not proportional to the emissions in the world without permits, there is a reduction factor of emissions that results from the equilibrium allocation of capital

Irreversible Investment, Uncertainty and Ambiguity: The Case of the Bioenergy Sector

We analyse the decision of an agent to invest and engage in industrial activities that are characterized by two forms of uncertainty: market size uncertainty and competitive effect uncertainty. We apply our model on the bioenergy industries. We compare the case of an ambiguity neutral agent with that of an ambiguity adverse agent. We show that the investment decision of an agent depends on the effects of both the capital investment and the level of production on the cost and the uncertainty the agent is confronted with. Moreover, we find that ambiguity aversion tends to decrease the agent's optimal levels of production and investment. Our numerical analysis of the French case illustrates the different effects associated with market size uncertainty and competitive effect uncertainty

The bioenergies development: the role of biofuels and the CO2 price

Reduction in energy dependancy and emissions of CO2 via renewables targeted in the European Union energy mix and taxation system might trigger the production of bioenergy production and competition for biomass utilization. Torrefied biomass could be used to produce second generation biofuels to replace some of the fuels used in transportation and is also suitable as feedstock to produce electricity in large quantities. This paper examines how the CO2 price aspects demand of torrefied biomass in the power sector and its consequences on the profitability of second generation biofuel units (Biomass to Liquid units). Indeed, the profitability of the BtL units which are supplied only by torrefied biomass is related to the competitive demand of the power sector driven by the CO2 price and feed-in tarifis. We propose a linear dynamic model of supply and demand. On the supply side, a profit-maximizing torrefied biomass sector is modelized. The model aims to represent the transformation of biomass into torrefied biomass which could be sold to the refinery sector and the power sector. A two-sided (demanders and supplier) bidding process led us to arrive at the equilibrium price for torrefied biomass. The French case is used as an example. Our results suggest that the higher the CO2 price, the more stable and important the power sector demand. It also makes the torrefied biomass production less vulnerable to uncertainty on demand coming from the refining sector. The torrefied biomass co-firing with coal can offer a near-term market for the torrefied biomass for a CO2 emission price lower than 20 euros/tCO2, which can stimulate development of biomass supply systems. Beyond 2020, the demand for torrefied biomass from the power sector could be substituted by the refining sector if the oil price goes up whatever the CO2 price.Bioenergy, CO2 price, Renery market, Electricity market, Optimization.

Economic Consequences of Permits Allocation Rules

This paper investigates the economic consequences of permits allocation rules. Following the rapid development of the Kyoto Protocol and the EU Emission Trading Scheme, it appears critical to better understand the procedure of allocation of permits between countries/firms and its distributive consequences. Indeed, due to intense political lobbying, the free distribution of permits to existing users as a function of a given benchmark (“grandfathering”) appears as the best solution to facilitate the agreement to the scheme. This paper discusses the pros and the cons of various other allocation rules, such as per capita emissions, per capita GDP, relative historical responsibility, or size of population. The main lesson of this study is that the most efficient free allocation methodology (maximizing world’s production for a given emissions level) consists in distributing permits based on the quantities of efficient labor, while a more equitable solution consists in distributing permits to each production factor proportionally to its share in production.Tradable permits market; allocation rules; capital allocation; factor income

France and International Environmental Policy

Environmental concerns play an increasing part in public debate and international negotiations and France has always been one of the leaders of this trend. Nonetheless, French environmental policies remain fairly cautious for at least three reasons. First, because of the lack of environmentally-related global governance. Secondly, because the French government is reluctant to burden business with the cost of adapting production processes in order to make them less harmful to the environment, for fear of damaging competitiveness. Finally, because of inadequate environmental accountability and the weak assessment of sustainable indicators.Environmental policy; international relations; France