Teaching Opportunity Cost in an Emissions Permit Experiment

This paper describes an individual choice experiment that can be used to teach students how to correctly account for opportunity costs in production decisions. Students play the role of producers who require a fuel input and an emissions permit for production. Given fixed market prices, they make production quantity decisions on the basis of their costs. Permits have a constant price throughout the experiment. In one treatment, students have to purchase both a fuel input and an emissions permit for each production unit. In a second treatment, they receive permits for free, and any unused permits are sold on their behalf at the permit price. If students correctly incorporate opportunity costs, they will have the same supply function in both treatments. This experiment motivates classroom discussion of opportunity costs and emissions permit allocation under cap-and-trade schemes. The European Union Emissions Trading Scheme provides a relevant example for classroom discussion, as industry earned significant windfall profits from free allocation of emissions allowances in the early phases of the program.opportunity cost, emissions permits, allowance allocation, classroom experiments

Teaching Opportunity Cost in an Emissions Permit Experiment

This paper describes an individual choice experiment that can be used to teach students how to correctly account for opportunity costs in production decisions. Students play the role of producers who require a fuel input and an emissions permit for production. Given fixed market prices, they make production quantity decisions on the basis of their costs. Permits have a constant price throughout the experiment. In one treatment, students have to purchase both a fuel input and an emissions permit for each production unit. In a second treatment, they receive permits for free, and any unused permits are sold on their behalf at the permit price. If students correctly incorporate opportunity costs, they will have the same supply function in both treatments. This experiment motivates classroom discussion of opportunity costs and emissions permit allocation under cap-and-trade schemes. The European Union Emissions Trading Scheme provides a relevant example for classroom discussion, as industry earned significant windfall profits from free allocation of emissions allowances in the early phases of the program.opportunity cost; emissions permits; allowance allocation; classroom experiments

Pricing Strategies under Emissions Trading: An Experimental Analysis

An important feature in the design of an emissions trading program is how emissions allowances are initially distributed into the market. In a competitive market the choice between an auction and free allocation should, according to economic theory, not have any influence on firms’ production choices nor on consumer prices. However, many observers expect the method of allocation to affect product prices. This paper reports on the use of experimental methods to investigate behavior with respect to how prices will be determined under a cap-and-trade program. Participants initially display a variety of pricing strategies. However, given a simple economic setting in which earnings depend on this behavior, we find that subjects learn to consider the value of allowances and overall behavior moves toward that predicted by economic theory.carbon dioxide, climate change, emissions trading, distributional effects, electricity, allocation, auctions

Pricing Strategies Under Emissions Trading: An Experimental Analysis

An important feature in the design of an emissions trading program is how emissions allowances are initially distributed into the market. In a competitive market the choice between an auction and free allocation should, according to economic theory, not have any influence on firms’ production choices nor on consumer prices. However, many observers expect the method of allocation to affect product prices. This paper reports on the use of experimental methods to investigate behavior with respect to how prices will be determined under a cap-and-trade program. Participants initially display a variety of pricing strategies. However, given a simple economic setting in which earnings depend on this behavior, we find that subjects learn to consider the value of allowances and overall behavior moves toward that predicted by economic theory.carbon dioxide; climate change; emissions trading; distributional effects; electricity; allocation; auctions

Energy scenario analysis for the Nordic transport sector: A critical review

Experiencing the highest growth in emissions since 1990 and relying mainly on oil, transport is considered the most complicated sector to decarbonize. Lately, the Nordic countries have shown remarkable success in reducing greenhouse gas (GHG) emissions, especially in the power and heat sector. However, when it comes to transportation, the greatest source of Nordic GHG emissions, stronger measures are needed. Relying on a rich and diversified portfolio of renewable sources and expertise, the Nordic countries could benefit from a common mitigation strategy by encompassing a larger variety of solutions and potential synergies. This article reviews studies addressing integrated energy and transport scenario analysis for the Nordic region as a whole. The studies targeted are those applying energy system models, given their extensive adoption in supporting scenario analysis. Most notable of these studies is the “Nordic Energy Technology Perspectives 2016” to which a special focus is dedicated. The article reviews the methodological choices and the research content of the selected literature. Challenges/limitations are identified in light of recent transport research, and categorized as: “transport behavior”, “breakthrough technologies”, “domestic energy resources” and “geographical aggregation and system boundaries”. Lastly, a list of suggestions to tackle the identified gaps is provided based on the existing literature

European Energy Policy in Transition: Critical Aspects of Emissions Trading

The overarching theme of the thesis is European energy and climate policy, with a particular focus on the role of emissions trading. The thesis consists of eight papers.The overarching theme of the thesis is European energy and climate policy, with a particular focus on the role of emissions trading. The thesis consists of eight papers

Allowance Allocation and CO2 Intensities in the EU Energy Sectors

The objective of the study was to investigate whether the national allocation plans of the EU Member States are fair and reasonable, for the energy sectors. The CO2 intensities and allocations were investigated for each Member State. The study concludes that there is little, or no, correlation between CO2 intensity in the energy sector, and the generosity of the allocation to the sector, in the respective Member States. This indicates that the National Allocation Plans are not fair and reasonable, and that they do not meet all of the Annex III criteria.The objective of the study was to investigate whether the national allocation plans of the EU Member States are fair and reasonable, for the energy sectors. The CO2 intensities and allocations were investigated for each Member State. The study concludes that there is little, or no, correlation between CO2 intensity in the energy sector, and the generosity of the allocation to the sector, in the respective Member States. This indicates that the National Allocation Plans are not fair and reasonable, and that they do not meet all of the Annex III criteria

Emissions Trading: The Ugly Duckling in European Climate Policy?

The initial years of the European Union's Emissions Trading System (EU ETS) have provided a large-scale testing ground for trading of a new environmental commodity, carbon dioxide. This paper provides an overview of the origins and characteristics of the EU ETS. It then goes on to analyse the most contentious issues that have been discussed in the economics literature and in the public debate surrounding the trading system. The lessons learned are diverse and not all experiences are positive. Nevertheless, invaluable information has been gained from the EU ETS and policy makers in Europe and elsewhere would be wise to make use of it, be they supporters of emissions trading or sceptics to such policies. The paper concludes with a look toward the future, highlighting some upcoming revisions of the EU ETS and at what issues remain unresolved.The initial years of the European Union's Emissions Trading System (EU ETS) have provided a large-scale testing ground for trading of a new environmental commodity, carbon dioxide. This paper provides an overview of the origins and characteristics of the EU ETS. It then goes on to analyse the most contentious issues that have been discussed in the economics literature and in the public debate surrounding the trading system. The lessons learned are diverse and not all experiences are positive. Nevertheless, invaluable information has been gained from the EU ETS and policy makers in Europe and elsewhere would be wise to make use of it, be they supporters of emissions trading or sceptics to such policies. The paper concludes with a look toward the future, highlighting some upcoming revisions of the EU ETS and at what issues remain unresolved