by J.E. Parsons, A.D. Ellerman and S. Feilhauer
- In this paper we focus on one component of the cap-and-trade system: the markets that arise for trading allowances after they have been allocated or auctioned. The efficient functioning of the market is key to the success of cap-and-trade as a system. We review the performance of the EU CO2 market and the U.S. SO2 market and examine how the flexibility afforded by banking and borrowing, and the limitations on banking and borrowing, have impacted the evolution of price in both markets.
Parsons, J.E., A.D. Ellerman and S. Feilhauer (2009). "Designing a U.S. Market for CO2." MIT Joint Program Report Series No 171, Feb 2009.