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A Leader-Follower Model for Tradable Performance-Based CO2 Emissions Standards

Chen, Y; Tanaka, M; Siddiqui, A; (2019) A Leader-Follower Model for Tradable Performance-Based CO2 Emissions Standards. In: (pp. pp. 941-946). IEEE: Miyazaki, Japan. Green open access

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Abstract

The U.S. Clean Power Plan stipulates a state-specific performance-based CO2 emission standard and delegates considerable flexibility to the states for using either a tradable performance-based or a mass-based permit program. This paper analyzes these two instruments when they are subject to imperfect competition. We show that while the cross-subsidy inherent in the performance-based instrument might effectively reduce power prices, it could also inflate energy demand, thereby rendering permits scarce. A dominant firm with a relatively clean endowment under the performance-based policy would be able to manipulate the electricity market as well as to lower permit prices, which might worsen market outcomes compared to its mass-based counterpart. On the other hand, the 'cross-subsidy' could be the dominant force leading to a higher social welfare if the leader has a relatively dirty endowment.

Type: Proceedings paper
Title: A Leader-Follower Model for Tradable Performance-Based CO2 Emissions Standards
ISBN-13: 9781538666500
Open access status: An open access version is available from UCL Discovery
DOI: 10.1109/SMC.2018.00167
Publisher version: https://doi.org/10.1109/SMC.2018.00167
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Oligopoly , ISO , Production , Linear programming , Instruments , Force
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences > Dept of Statistical Science
URI: https://discovery.ucl.ac.uk/id/eprint/10070416
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