Tradable emission permits: beyond pollution abatement motives

In this paper we study how the electricity market characteristics determines the choices made by electricity generators in the U.S. market for SO2 allowances. Counterparts can be chosen among three alternatives: market makers, brokers or another generator. We find that the SO2 allowances market is de facto regionalized due to the regionalization of the electricity market. The national dimension only appears when there are local imbalances in the electricity market that give strong incentives to search for a better price outside of the region. Additionally, we identify the influence of the regulatory framework, i.e. the division in phases and the chosen allowance surrender date. Finally, we show that the previous results are robust to Enron’s abnormal behavior during 2000-2001 and its posterior bankruptcy.

Documents de recherche 16-01, Centre d’Études des Politiques Économiques (EPEE), Université d’Evry Val d’Essonne.