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Environmental and Resource Economics

, Volume 53, Issue 2, pp 229–249 | Cite as

Investment Incentives Under Emission Trading: An Experimental Study

  • Eva Camacho-Cuena
  • Till Requate
  • Israel Waichman
Article

Abstract

This paper presents the results of an experimental investigation on incentives to adopt advanced abatement technology under emissions trading. Our experimental design mimics an industry with small asymmetric polluting firms regulated by different schemes of tradable permits. We consider three allocation/auction policies: auctioning off (costly) permits through an ascending clock auction, grandfathering permits with re-allocation through a single-unit double auction, and grandfathering with re-allocation through an ascending clock auction. Our results confirm both dynamic and static theoretical equivalence of auctioning and grandfathering. We nevertheless find that although the market institution used to reallocate permits does not impact the dynamic efficiency from investment, it affects the static efficiency from permit trading.

Keywords

Environmental policy Abatement technology Taxes Permit trading Auctions 

JEL Classification

C92 D44 L51 Q28 Q55 

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Supplementary material

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Copyright information

© Springer Science+Business Media B.V. 2012

Authors and Affiliations

  • Eva Camacho-Cuena
    • 1
  • Till Requate
    • 2
    • 3
  • Israel Waichman
    • 4
  1. 1.Department of EconomicsUniversity Jaume I of CastellónCastellónSpain
  2. 2.Department of EconomicsUniversity of KielKielGermany
  3. 3.Kiel Institute for the World EconomyKielGermany
  4. 4.Department of EconomicsUniversity of HeidelbergHeidelbergGermany

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