An Economic Analysis of the Emission Reduction Market System in Chicago

  • 研討會日期 : 2003-02-11
  • 時間 : 15:00
  • 主講人 : 廖肇寧教授
  • 地點 : B棟110室
  • 演講者簡介 : 廖肇寧教授為Ph.D. in Agricultural Economics,University of Illinois at Urbana-Champaign (2001)。 現為成功大學經濟系助理教授。 其主要研究領域為環境經濟學、資源經濟學、都市經濟學。
  • 演講摘要 : Prior to 2000, the Chicago area did not meet the National Ambient Air Quality Standards. The Illinois EPA initiated a tradable pollution permit system, ERMS, believing that a market-based mechanism is more efficient than the conventional command-and-control scheme. This research aims at determining the equilibrium in permit market and investigates potential economic impacts of ERMS. Many ERMS firms face an important investment decision because of high installation costs of control equipments. The firms' optimizing behavior is simulated using a mixed-integer program (MIP), where technology adoption decisions are represented by binary variables. Previous studies used convex programming approaches and derived equilibrium prices from shadow prices of demand-supply balance constraints in a social planner's model. The discrete variables and non-differentiable functional forms make this approach inapplicable here. This study explores whether average shadow prices, a MIP counterpart of conventional shadow prices, can establish market equilibrium. As an alternative approach, the firm-level optimization model is coupled with a simulation model that mimics permit transactions among firms operating in a competitive environment without having full information about market conditions. For given expected permit prices, firms make technology adoption and trading decisions independently, while transactions and prices are determined through a bilateral and sequential trading process based on buyers' willingness-to-pay and sellers' willingness-to-accept. Assuming full information and full cooperation, the MIP model is solved first to determine the socially optimum solution. This model is also used to derive the average shadow price of pollution permits. The empirical results show that: i) few firms would adopt new technology and the volume of permit trading would be very small, and ii) the average shadow price would not establish equilibrium in the permit market. The simulation model, on the other hand, yields substantial oversupply of permits in the beginning. Permit prices, although varying throughout the planning horizon, would be nearly half of the IEPA's estimate. Many banked permits would expire after the first two seasons whereas IEPA's reserved permits would be needed later due to short supply and high demand. Sensitivity analysis shows that initial price expectation is crucial for economic efficiency and stability of the market.