Price and Quantity “Collars” for Stabilizing Emissions Allowance Prices: An Experimental Analysis of the EU ETS Market Stability ReserveDownload
This paper reports the results of a laboratory experiment with financially motivated participants that is used to compare alternative proposals for managing the time path of emissions allowance prices in the face of random firm-specific and market-level structural shocks. In this setting, market performance measures such as social surplus are enhanced by the use of a price collar (auction reserve price and soft price cap). Comparable performance enhancements are not observed with the implementation of a quantity collar that adjusts auction quantities in response to privately held inventories of unused allowances. In fact, in some specifications, the quantity collar performed worse than no stabilization policy at all. The experiment implemented a specific set of structural elements, and extrapolation to other settings should be done with caution. Nevertheless, an examination of the observed behavioral patterns and deviations from optimal behavior suggests that a price collar has an important (although perhaps not exclusive) role to play in constructing an effective market stability reserve policy.
Common Resources — Jun 25, 2015
Low Allowance Prices in the EU Emissions Trading System: New Research on an Evolving Program
The EU Emissions Trading System (ETS) for carbon dioxide (CO2) is the largest worldwide. Since its inception in 2005, it has experienced allowance ...
Press Release — Jun 1, 2022
Poland's Energy Transition Offers Strategies for Shifting Away from Fossil Fuels, Even in a Changing Energy Landscape
A new report by scholars at Resources for the Future and the Polish think tank WiseEuropa examines Poland’s energy transition away from coal to analyze solutions that could help decarbonization efforts worldwide.