Cost Uncertainty in Experimental Emissions Markets and Price Control
Anca Mihut  1@  
1 : Groupe d'analyse et de théorie économique  (GATE Lyon Saint-Étienne)  -  Website
Université Lumière - Lyon II
93, chemin des Mouilles 69130 Écully --- 6, rue Basse des Rives 42023 Saint-Étienne cedex 02 -  France

In this paper, we use experimental emissions trading markets to investigate the effects of two types of instruments for dealing with the negative effects of price risk, that results from the potential shocks that could affect production costs. As per the results obtained, the first mechanism that allows banking and borrowing permits from one period to another, yields some important benefits in terms of the reduction of price volatility, price dispersion and it significantly increases market liquidity, leading to overall flatter price series. The second instrument, besides allowing for permit transfer, also considers an adjustable supply of permits, such that besides managing to stabilize the price path, it also creates more significant results in terms of settling it around a desired target price level.

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