AUTHOR=Jiang Minxing , Feng Xingliang , Li Liang 

TITLE=Market Power, Intertemporal Permits Trading, and Economic Efficiency

JOURNAL=Frontiers in Energy Research

VOLUME=Volume 9 - 2021

YEAR=2021

URL=https://www.frontiersin.org/journals/energy-research/articles/10.3389/fenrg.2021.704556

DOI=10.3389/fenrg.2021.704556

ISSN=2296-598X

ABSTRACT=Banking and borrowing (BB) system has been developed gradually in tradable permits market to role as an environmental management tool. One question naturally arises as to how it will impact the firms’ behaviors and efficiency in presence of market power in permits market. This paper considers market power in two cases: with BB and without BB system. The equilibrium behaviors of the firms are identified in two cases. The findings show that the producing and discharging behaviors of firms depend on permits price elasticity of output price in no BB system, while they only depend on growth rate of output price in BB system. Although both cases fail to obtain efficient solutions, the market with BB system is capable of alleviating the inefficiency arising from market power compared with that without BB system. The path of permits price satisfies Hotelling rule in the case of BB system, while it is closely related to the path of output price and output price elasticity of permits price in the case without BB system.