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Energies 2016, 9(11), 897; doi:10.3390/en9110897

Carbon Auction Revenue and Market Power: An Experimental Analysis

John Glenn College of Public Affairs, The Ohio State University, 1810 College Rd, Columbus, OH 43210, USA
Academic Editor: Jovan Zubović
Received: 15 August 2016 / Revised: 29 September 2016 / Accepted: 13 October 2016 / Published: 1 November 2016
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Abstract

State and regional governments in the U.S. and abroad are looking to market-based approaches to mitigating greenhouse gas emissions from the electric sector, and in the U.S. as a compliance approach to meeting the aggressive targets of the Environmental Protection Agency (EPA)’s Clean Power Plan. Auction-based approaches, like those used in the Northeast U.S. and California, are both recommended strategies under the Plan and attractive to state governments because they can generate significant revenue from the sale of emissions permits. However, given the nature of imperfect competition in existing electricity markets, particularly at the state and regional level, the issue of market power is a concern at the forefront. This paper provides the results from a controlled laboratory experiment of an auction-based emissions market in the electricity sector. The results show that government revenue from auctioning emissions permits is substantially lower when market concentration is only moderately increased. The results hold significant implications for states and other subnational governments that have high revenue expectations from the auctioning of emissions permits. View Full-Text
Keywords: carbon auctions; cap-and-trade; market power; government revenue; climate change; Clean Power Plan; Clean Air Act carbon auctions; cap-and-trade; market power; government revenue; climate change; Clean Power Plan; Clean Air Act
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Dormady, N. Carbon Auction Revenue and Market Power: An Experimental Analysis. Energies 2016, 9, 897.

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