Modeling the impact of uncertainty in emissions trading markets with bankable permits

doi:10.1007/s11783-012-0431-x

Front Envir Sci Eng

2013, Vol. 7

Issue (2) : 231-241 https://doi.org/10.1007/s11783-012-0431-x

RESEARCH ARTICLE

Modeling the impact of uncertainty in emissions trading markets with bankable permits

Yongliang ZHANG, Bing ZHANG(

), Jun BI(

), Pan HE

State Key Laboratory of Pollution Control & Resource Reuse, School of Environment, Nanjing University, Nanjing 210093, China

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Abstract

The various forms of uncertainty that firms may face in bankable emission permit trading markets will affect firms’ decision making as well as their market performance. This research explores the effect of increased uncertainty over future input costs and output prices on the temporal distribution of emission. In a dynamic programming setting, the permit price is a convex function of stochastic prices of coal and electricity. Increased uncertainty about future market conditions increases the expected permit price and causes a risk neutral firm to reduce ex ante emissions in order to smooth out marginal abatement costs over time. Finally, safety valves, both low-side and high-side, are suggested to reduce the impact of uncertainty in bankable emission trading markets.

Keywords uncertainty bankable emission trading market performance

Corresponding Author(s): ZHANG Bing,Email:zhangb@nju.edu.cn; BI Jun,Email:jbi@nju.edu.cn

Issue Date: 01 April 2013

Cite this article:

Yongliang ZHANG,Pan HE,Bing ZHANG, et al. Modeling the impact of uncertainty in emissions trading markets with bankable permits[J]. Front Envir Sci Eng, 2013, 7(2): 231-241.

URL:

https://academic.hep.com.cn/fese/EN/10.1007/s11783-012-0431-x
https://academic.hep.com.cn/fese/EN/Y2013/V7/I2/231

Tab.1 State variables and scales

Fig.1 Marginal profitability of emission permits along with

Fig.2 Marginal profitability of emission permits along with

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