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http://dx.doi.org/10.15266/KEREA.2022.31.2.261

A Quantitative Study of the Effects of a Price Collar in the Korea Emissions Trading System on Emissions and Costs  

Bae, Kyungeun (Department of Climate, Environment and Energy Studies, Sookmyung Women's University)
Yoo, Taejoung (Department of Business Administration, Sangmyung University)
Ahn, Young-Hwan (College of General Education, Sookmyung Women's University)
Publication Information
Environmental and Resource Economics Review / v.31, no.2, 2022 , pp. 261-290 More about this Journal
Abstract
Although market stabilization measures have been triggered in the K-ETS, carbon price is still under uncertainty. Considering Korea's 2030 enhanced reduction target announced in October 2021, it is crucial to have practical stabilization measures to appropriately deal with price uncertainty. This study examines the quantitative effects of a price collar, which is considered as a means of alleviating price uncertainty, on expected cumulative emissions and abatement costs. There are three main scenarios: carbon tax, emissions trading system, and emissions trading system with a price collar. Monte Carlo simulation was conducted to reflect uncertainty in emission. There are several results as follows: 1) In a price collar, domestic emission target is likely to be achieved with a lower expected abatement cost than other scenarios. In addition, there is a small amount of excess emissions in this research and it would be not critical(0.1% excess than target); 2) Prohibiting banking increases the expected abatement cost. This is because firms can not intertemporally reallocate allowances to match the firm's optimal emissions path; 3) With the adoption of a price collar, government's net revenue can be positive even if the government's purchase volume of emissions allowances is more than sales volume. This is because the government sells them at price ceiling and purchases them at price floor.
Keywords
Emissions trading system; Price collar; Abatement costs; Uncertainty;
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