ABSTRACT

It is the aim of this chapter to test the cost-effectiveness of an important feature of the cap-and-trade market design. The test compares the abatement costs of a banking horizon, or expiration date, of one year after issuance of a tradable permit with those of an unrestricted banking horizon. The former, the one-year shelf life, is the feature of the Emissions Reduction Market System (ERMS), examined elsewhere in this book. The experimental methodology used in this test enables the authors to prepare new comparisons of the resulting costs of pollution abatement for both banking horizons.