Pricing emission permits in the absence of abatement

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Pricing emission permits in the absence of abatement

JournalArticle (Originalarbeit in einer wissenschaftlichen Zeitschrift)

ID	1530547
Author(s)	Hintermann, Beat
Author(s) at UniBasel	Hintermann, Beat
Year	2012
Title	Pricing emission permits in the absence of abatement
Journal	Energy Economics
Volume	34
Number	5
Pages / Article-Number	1329-1340
Abstract	If emissions are stochastic and firms are unable to control them through abatement, the cap in a permit market may be exceeded, or not be reached. I derive a binary options pricing formula that expresses the permit price as a function of the penalty for noncompliance and the probability of an exceeded cap under the assumption of no abatement. I apply my model to the EU ETS, where the rapid introduction of the market made it difficult for firms to adjust their production technology in time for phase 1. The model fits the data well, implying that the permit price was at least partly driven by firms hedging against stochastic emissions.
Publisher	Elsevier
ISSN/ISBN	0140-9883
edoc-URL	http://edoc.unibas.ch/48538/
Full Text on edoc	Available
Digital Object Identifier DOI	10.1016/j.eneco.2012.06.005
ISI-Number	WOS:000308573300008
Document type (ISI)	Article

23/04/2024

Research Database / FORSCHUNGSDATENBANK