Price and Quantity "Collars" for Stabilizing Emissions Allowance Prices: An Experimential Analysis of the EU ETS Market Stability Reserve

This paper reports the results of a laboratory experiment with financially motivated participants that is used to compare alternative proposals for managing the time path of emission allowance prices in the face of random firm-specific and market-level structural shocks. In this setting, market performance measures such as social surplus are enhanced by the use of a price collar (auction reserve price and soft price cap). Comparable performance enhancements are not observed with the implementation of a quantity collar that adjusts auction quantities in response to privately held inventories of unused allowances. [Published in the Journal of Environmental Economics and Management, Vol. 76, pp. 32-50.]


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Charles Holt