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Multi-round auctions in an emissions trading system considering firm bidding strategies and government regulations

Abstract

The allocation of carbon emission rights via auctioning has gradually become an irreplaceable part of the emissions trading system. However, the efficiency of allocations suffers due to low and volatile auction-clearing prices, which cannot account for price discovery. Furthermore, the fixed cap lacks flexibility in emission trading systems. Therefore, this study proposes a multi-round auction model with a floating cap for carbon allocation, integrating firms’ bidding strategies during the auction cycle and the impact of governmental regulations. The results show that (1) compared with static auctions, multi-round auctions can achieve a higher and more stable clearing price. (2) The mechanism provides flexibility for the distribution of profits and may encourage firms to participate in auctions. (3) Among all factors, the total supply of carbon emission permits and the economic environment more significantly influence the mechanism.

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Funding

The authors are grateful to the financial support from the National Natural Science Foundation of China (nos. 71922013 and 71834003).

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Correspondence to Qunwei Wang.

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Wang, Q., Cheng, C. & Zhou, D. Multi-round auctions in an emissions trading system considering firm bidding strategies and government regulations. Mitig Adapt Strateg Glob Change 25, 1403–1421 (2020). https://doi.org/10.1007/s11027-020-09928-z

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Keywords

  • Carbon emission permit allocation
  • Multi-round auction
  • Bidding strategies
  • Optimal total rounds
  • Governmental regulations