Matti Liski, Environmental & Resource Economics, Vol.31, No.2, pp.159-173, (2005)

In this paper, we investigate the effect of market power on equilibrium path of an emission permits market in which firms can bank current permits for use in later periods. In particular, we study the market equilibrium for a large (potentially dominant) firm and competitive fringe with rational expectations. We characterize the equilibrium solution for different permits allocations and discuss the large firm’s stock-holding constraints needed for credible market manipulation.

(CEEPR Working Paper 2004-005 is an earlier version of this article)