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Environmental policy and speculation on markets for emission permits

Colla, Paolo;Germain, Marc;Van Steenberghe, Vincent
(2005)

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Authors
  • Colla, Paolo
    Author
  • Germain, MarcUCLouvain
    Author
  • Van Steenberghe, Vincent
    Author
Abstract
Tradable emission permits share many characteristics with financial assets. As on financial markets, speculators are likely to be active on large markets for emission permits such as those developing under the Kyoto Protocol. We show how the presence of speculators on a market for emission permits affects the price of these permits when firms face risk aversion. The agency in charge of the optimal environmental policy should account for the presence of speculators when determining the total amount of permits to issue.
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Colla, P., Germain, M., & Van Steenberghe, V. (2005). Environmental policy and speculation on markets for emission permits (ECON Discussion Papers 2005/49). https://hdl.handle.net/2078.5/35609