An Economic Analysis of the Emission Reduction Market System in Chicago
Liao, Chan-Ning
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https://hdl.handle.net/2142/82948
Description
Title
An Economic Analysis of the Emission Reduction Market System in Chicago
Author(s)
Liao, Chan-Ning
Issue Date
2001
Doctoral Committee Chair(s)
Onal, Hayri
Department of Study
Agricultural Economics
Discipline
Agricultural Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Environmental Sciences
Language
eng
Abstract
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.
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