Inefficient trading of carbon credits
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SeriesErasmus Finance Seminars
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SpeakerBart Zhou Yueshen (Singapore Management University)
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FieldFinance, Accounting and Finance
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LocationErasmus University Rotterdam, Campus Woudestein, Polak 2-20
Rotterdam -
Date and time
June 17, 2024
11:45 - 13:00
Please note: this seminar takes place on a Monday.
Abstract
The EU Emission Trading System allocates carbon credits to firms via auctions in
the primary market and allows them to subsequently trade with each other in the
secondary market. In equilibrium, the secondary-market trading can be
inefficient, both in terms of emission and productivity: The secondary market
re-allocates credits according to firms' post-auction productivity shocks but
ignores emission externality and the concentration of market power. Shutting
down the secondary market could mitigate the inefficiency but at the cost
firms' incentive to abate emission. Instead, we propose that the government
should directly participate in the secondary market.