A Mechanism Design for Managing Emissions in Energy Supply Sector

Ken Nagasaka; Hiroshi Takamori; Eiroku Go

doi:10.20965/jaciii.2013.p0094

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JACIII Vol.17 No.1 pp. 94-102

doi: 10.20965/jaciii.2013.p0094

(2013)

Position Paper:

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A Mechanism Design for Managing Emissions in Energy Supply Sector

Ken Nagasaka^, Hiroshi Takamori^, and Eiroku Go^

^*Department of Electrical and Electronics Engineering, Tokyo University of Agriculture and Technology, 2-24-16 Nakamachi, Koganei-shi, Tokyo 184-8588, Japan

^**Waseda University Environmental Research Center, 2-7-10 Misaki-cho, Chiyoda-ku, Tokyo 101-0061, Japan

^***CSD Corporation, 3-2-1 Sakato, Takatsu-ku, Kawasaki-shi, Kanagawa, Japan

Received:

December 10, 2012

Accepted:

December 21, 2012

Published:

January 20, 2013

Keywords:

auction mechanism, emissions demand schedule, power utilities, pricing of allowances, asymmetry of information

Abstract

The strategic design for a program for managing the commons involves devising a scheme where those regulated are not trapped into inefficient equilibrium of moral hazardous behavior. This paper studies the auctionmechanism for allocating allowance or licenses for CO2 emission and also pricing transferable allowance. For the sake of clear presentation, we use a behavioral model of an electricity supplier firm to define key ingredients in the auction mechanism. Program implementation is evaluated by simulating the firm’s response to various levels of constraint under the program.

Cite this article as:

K. Nagasaka, H. Takamori, and E. Go, “A Mechanism Design for Managing Emissions in Energy Supply Sector,” J. Adv. Comput. Intell. Intell. Inform., Vol.17 No.1, pp. 94-102, 2013.

Data files:

References

[1] E. Kwerel, “To Tell the Truth: Imperfect Information and Optimal Pollution Control,” Review of Economic Studies, Vol.82, No.3, pp. 579-599, 1977.
[2] P. Dasgupta, P. Hammond, and E. Maskin, “On Imperfect Information and Optimal Pollution Control,” American Economic Review, Vol.47, No.5, pp. 857-869, 1980.
[3] J. C. Kim and K. B. Chang, “An Optimal Tax/Subsidy for Output and Pollution Control under Asymmetric Information in Oligopoly Market,” J. of Regulatory Economics, Vol.5, No.2, pp. 183-197, 1993.
[4] J.Montero, “A Simple Auction Mechanism for the Optimal Allocation of the Commons,” American Economic Review, Vol.98, No.1, pp. 496-518, 2008.
[5] D. Harrison and D. B. Radov, “Evaluation of Alternative Initial Allocation Mechanisms in A European Union Greenhouse Gas Emissions Allowance Trading Scheme,” National Economic Research Associates, 2002.
[6] R. Betz and M. Misato, “Emissions Trading: Lessens Learned from the 1st Phase of the EU ETS and Prospects for the 2nd Phase,” Climate Policy, Vol.6, pp. 351-359, 2006.
[7] B. Fratzke-Weib and J. Hauff, “CO2 Emission Trading from Theory to Practice: Strategic and Operational Challenges for Power Generators,” Power-Gen Conference, Düsseldorf, May 2003.
[8] G. Klepper and S. Peterson, “Marginal Abatement Cost Curves in General Equilibrium: The Influence of World Energy Prices,” Social Science Research Network Electric Paper Collection, Nov. 2004.
http:ssrn.com/abstract=615665
[9] J. Kruger, “Companies and Regulators in Emissions Trading Programs,” Resource for the Future, 2005.
[10] D. W. Montgomery, “Markets in Licenses and Efficient Pollution Control Programs,” J. of Economic Theory, Vol.5, pp. 393-418, 1972.
[11] R. Smale, M. Hartley, C. Hepburn, J. Ward, and M. Grubb, “The impact of CO2 emissions trading on firm profits and market prices,” Climate Policy, Vol.6, p. 2946, 2006.
[12] J. Reinaud, “Industrial Competitiveness under the European Union Emissions Trading Programs,” Int. Energy Agency, February 2005.
[13] H. Takamori, K. Nagasaka, and E. Go, “Toward Designing Value Supportive Infrastructure for Electricity Trading,” Proc. of IEEE, CEC/EEE2007, Tokyo, July 23-26, 2007.

This article is published under a Creative Commons Attribution-NoDerivatives 4.0 Internationa License.

[1] [1] E. Kwerel, “To Tell the Truth: Imperfect Information and Optimal Pollution Control,” Review of Economic Studies, Vol.82, No.3, pp. 579-599, 1977.

[2] [2] P. Dasgupta, P. Hammond, and E. Maskin, “On Imperfect Information and Optimal Pollution Control,” American Economic Review, Vol.47, No.5, pp. 857-869, 1980.

[3] [3] J. C. Kim and K. B. Chang, “An Optimal Tax/Subsidy for Output and Pollution Control under Asymmetric Information in Oligopoly Market,” J. of Regulatory Economics, Vol.5, No.2, pp. 183-197, 1993.

[4] [4] J.Montero, “A Simple Auction Mechanism for the Optimal Allocation of the Commons,” American Economic Review, Vol.98, No.1, pp. 496-518, 2008.

[5] [5] D. Harrison and D. B. Radov, “Evaluation of Alternative Initial Allocation Mechanisms in A European Union Greenhouse Gas Emissions Allowance Trading Scheme,” National Economic Research Associates, 2002.

[6] [6] R. Betz and M. Misato, “Emissions Trading: Lessens Learned from the 1st Phase of the EU ETS and Prospects for the 2nd Phase,” Climate Policy, Vol.6, pp. 351-359, 2006.

[7] [7] B. Fratzke-Weib and J. Hauff, “CO2 Emission Trading from Theory to Practice: Strategic and Operational Challenges for Power Generators,” Power-Gen Conference, Düsseldorf, May 2003.

[8] [8] G. Klepper and S. Peterson, “Marginal Abatement Cost Curves in General Equilibrium: The Influence of World Energy Prices,” Social Science Research Network Electric Paper Collection, Nov. 2004.
http:ssrn.com/abstract=615665

[9] [9] J. Kruger, “Companies and Regulators in Emissions Trading Programs,” Resource for the Future, 2005.

[10] [10] D. W. Montgomery, “Markets in Licenses and Efficient Pollution Control Programs,” J. of Economic Theory, Vol.5, pp. 393-418, 1972.

[11] [11] R. Smale, M. Hartley, C. Hepburn, J. Ward, and M. Grubb, “The impact of CO2 emissions trading on firm profits and market prices,” Climate Policy, Vol.6, p. 2946, 2006.

[12] [12] J. Reinaud, “Industrial Competitiveness under the European Union Emissions Trading Programs,” Int. Energy Agency, February 2005.

[13] [13] H. Takamori, K. Nagasaka, and E. Go, “Toward Designing Value Supportive Infrastructure for Electricity Trading,” Proc. of IEEE, CEC/EEE2007, Tokyo, July 23-26, 2007.

A Mechanism Design for Managing Emissions in Energy Supply Sector

Ken Nagasaka*, Hiroshi Takamori**, and Eiroku Go***

Ken Nagasaka^, Hiroshi Takamori^, and Eiroku Go^