Price Discovery of Consignment Auctions for Emission Permits

A consignment auction aims to increase political feasibility by reducing the financial burden of initial permits allocation and to do the role of price discovery. However, previous analytical models presented contradictory results for the price discovery function of a consignment auction. Thus, this...

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Autores principales:	Jae-Do Song, Young-Hwan Ahn
Formato:	article
Lenguaje:	EN
Publicado:	MDPI AG 2021
Materias:	emissions trading scheme consignment auction price discovery climate change mitigation Technology T
Acceso en línea:	https://doaj.org/article/240782a5e88b4fe5b76172c10b8e7418
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spelling	oai:doaj.org-article:240782a5e88b4fe5b76172c10b8e74182021-11-11T15:48:16ZPrice Discovery of Consignment Auctions for Emission Permits10.3390/en142169851996-1073https://doaj.org/article/240782a5e88b4fe5b76172c10b8e74182021-10-01T00:00:00Zhttps://www.mdpi.com/1996-1073/14/21/6985https://doaj.org/toc/1996-1073A consignment auction aims to increase political feasibility by reducing the financial burden of initial permits allocation and to do the role of price discovery. However, previous analytical models presented contradictory results for the price discovery function of a consignment auction. Thus, this study reexamines whether a consignment auction can perform its price discovery function. The study uses a simple game model with several assumptions differentiated from previous analytical models: explicit consideration of the secondary market and firms as price-takers with various behaviors to respond to uncertainty about the price in the secondary market. Firms are classified into three types: speculators who seek arbitrage, doctrinarians who determine a permit demand based on an estimation of their marginal abatement cost, and neutralists who keep a permit demand the same as initial emission endowments. The results reveal that when a consignment auction was introduced, the expected equilibrium price was identical to that of the secondary market price, demonstrating that the auction could deliver the price discovery function. This is because speculators and doctrinarians provide information about their price expectations and marginal abatement cost through their estimated demand functions. Additionally, the smaller number of neutralists is, and the higher the risk-seeking propensity of speculators is, the more effective the price discovery function is.Jae-Do SongYoung-Hwan AhnMDPI AGarticleemissions trading schemeconsignment auctionprice discoveryclimate change mitigationTechnologyTENEnergies, Vol 14, Iss 6985, p 6985 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	emissions trading scheme consignment auction price discovery climate change mitigation Technology T
spellingShingle	emissions trading scheme consignment auction price discovery climate change mitigation Technology T Jae-Do Song Young-Hwan Ahn Price Discovery of Consignment Auctions for Emission Permits
description	A consignment auction aims to increase political feasibility by reducing the financial burden of initial permits allocation and to do the role of price discovery. However, previous analytical models presented contradictory results for the price discovery function of a consignment auction. Thus, this study reexamines whether a consignment auction can perform its price discovery function. The study uses a simple game model with several assumptions differentiated from previous analytical models: explicit consideration of the secondary market and firms as price-takers with various behaviors to respond to uncertainty about the price in the secondary market. Firms are classified into three types: speculators who seek arbitrage, doctrinarians who determine a permit demand based on an estimation of their marginal abatement cost, and neutralists who keep a permit demand the same as initial emission endowments. The results reveal that when a consignment auction was introduced, the expected equilibrium price was identical to that of the secondary market price, demonstrating that the auction could deliver the price discovery function. This is because speculators and doctrinarians provide information about their price expectations and marginal abatement cost through their estimated demand functions. Additionally, the smaller number of neutralists is, and the higher the risk-seeking propensity of speculators is, the more effective the price discovery function is.
format	article
author	Jae-Do Song Young-Hwan Ahn
author_facet	Jae-Do Song Young-Hwan Ahn
author_sort	Jae-Do Song
title	Price Discovery of Consignment Auctions for Emission Permits
title_short	Price Discovery of Consignment Auctions for Emission Permits
title_full	Price Discovery of Consignment Auctions for Emission Permits
title_fullStr	Price Discovery of Consignment Auctions for Emission Permits
title_full_unstemmed	Price Discovery of Consignment Auctions for Emission Permits
title_sort	price discovery of consignment auctions for emission permits
publisher	MDPI AG
publishDate	2021
url	https://doaj.org/article/240782a5e88b4fe5b76172c10b8e7418
work_keys_str_mv	AT jaedosong pricediscoveryofconsignmentauctionsforemissionpermits AT younghwanahn pricediscoveryofconsignmentauctionsforemissionpermits
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Price Discovery of Consignment Auctions for Emission Permits

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