- Designing Short Term Trading Systems with Artificial Neural Networks | SpringerLink
- Professional Stock Trading: System Design and Automation9780971853645, 0971853649
- Step 1: Time Frame
This announcement was significant because it gives the executive branch the authority to impose carbon regulations on carbon-emitting entities. A carbon cap-and-trade system is to be introduced nationwide in China in [40] China's National Development and Reform Commission proposed that an absolute cap be placed on emission by Some economists have urged the use of market-based instruments such as emissions trading to address environmental problems instead of prescriptive "command-and-control" regulation.
After an emissions limit has been set by a government political process, individual companies are free to choose how or whether to reduce their emissions. Failure to report emissions and surrender emission permits is often punishable by a further government regulatory mechanism, such as a fine that increases costs of production. Firms will choose the least-cost way to comply with the pollution regulation, which will lead to reductions where the least expensive solutions exist, while allowing emissions that are more expensive to reduce. Under an emissions trading system, each regulated polluter has flexibility to use the most cost-effective combination of buying or selling emission permits, reducing its emissions by installing cleaner technology, or reducing its emissions by reducing production.
The most cost-effective strategy depends on the polluter's marginal abatement cost and the market price of permits. In theory, a polluter's decisions should lead to an economically efficient allocation of reductions among polluters, and lower compliance costs for individual firms and for the economy overall, compared to command-and-control mechanisms. For emissions trading where greenhouse gases are regulated, one emissions permit is considered equivalent to one metric ton of carbon dioxide CO 2 emissions. Other names for emissions permits are carbon credits , Kyoto units, assigned amount units , and Certified Emission Reduction units CER.
These permits can be sold privately or in the international market at the prevailing market price. These trade and settle internationally, and hence allow permits to be transferred between countries. Each transfer of ownership within the European Union is additionally validated by the European Commission. Trading exchanges have been established to provide a spot market in permits, as well as futures and options market to help discover a market price and maintain liquidity.
Carbon prices are normally quoted in euros per tonne of carbon dioxide or its equivalent CO 2 e. Other greenhouse gases can also be traded, but are quoted as standard multiples of carbon dioxide with respect to their global warming potential. These features reduce the quota's financial impact on business, while ensuring that the quotas are met at a national and international level. Many companies now engage in emissions abatement, offsetting, and sequestration programs to generate credits that can be sold on one of the exchanges.
At least one private electronic market has been established in CantorCO2e. Louis Redshaw, head of environmental markets at Barclays Capital , predicts that "carbon will be the world's biggest commodity market, and it could become the world's biggest market overall. An emission license directly confers a right to emit pollutants up to a certain rate. In contrast, a pollution license for a given location confers the right to emit pollutants at a rate which will cause no more than a specified increase at the pollution-level.
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For concreteness, consider the following model. As an example, consider three countries along a river as in the fair river sharing setting. Therefore, a polluter that affects water quality at a number of points has to hold a portfolio of licenses covering all relevant monitoring-points. In the above example, if country 2 wants to emit a unit of pollutant, it should purchase two permits: one for location 2 and one for location 3.
Montgomery shows that, while both markets lead to efficient license allocation, the market in pollution-licenses is more widely applicable than the market in emission-licenses. In the United States, most polling shows large support for emissions trading often referred to as cap-and-trade. They are, however, ambivalent on cap-and-trade. More than three-quarters of respondents, While According to PolitiFact , it is a misconception that emissions trading is unpopular in the United States because of earlier polls from Zogby International and Rasmussen which misleadingly include "new taxes" in the questions taxes aren't part of emissions trading or high energy cost estimates.
Cap and trade is the textbook example of an emissions trading program. Other market-based approaches include baseline-and-credit , and pollution tax. They all put a price on pollution for example, see carbon price , and so provide an economic incentive to reduce pollution beginning with the lowest-cost opportunities. By contrast, in a command-and-control approach, a central authority designates pollution levels each facility is allowed to emit. Cap and trade essentially functions as a tax where the tax rate is variable based on the relative cost of abatement per unit, and the tax base is variable based on the amount of abatement needed.
In a baseline and credit program, polluters can create permits, called credits or offsets, by reducing their emissions below a baseline level, which is often the historical emissions level from a designated past year. Emissions fees or environmental tax is a surcharge on the pollution created while producing goods and services. Both can have a range of scopes, points of regulation, and price schedules. They can be fair or unfair, depending on how the revenue is used. Both have the effect of increasing the price of goods such as fossil fuels to consumers.
Designing Short Term Trading Systems with Artificial Neural Networks | SpringerLink
Yet, many commentators sharply contrast the two approaches. The main difference is what is defined and what derived. A tax is a price control, while a cap-and-trade system is a quantity control instrument. Responsiveness to inflation: Cap-and-trade has the advantage that it adjusts to inflation changes to overall prices automatically, while emissions fees must be changed by regulators. Responsiveness to cost changes: It is not clear which approach is better. It is possible to combine the two into a safety valve price: a price set by regulators, at which polluters can buy additional permits beyond the cap.
Responsiveness to recessions: This point is closely related to responsiveness to cost changes, because recessions cause a drop in demand. Under cap and trade, the emissions cost automatically decreases, so a cap-and-trade scheme adds another automatic stabilizer to the economy - in effect, an automatic fiscal stimulus. However, a lower pollution price also results in reduced efforts to reduce pollution. If the government is able to stimulate the economy regardless of the cap-and-trade scheme, an excessively low price causes a missed opportunity to cut emissions faster than planned.
Instead, it might be better to have a price floor a tax. This is especially true when cutting pollution is urgent, as with greenhouse gas emissions. A price floor also provides certainty and stability for investment in emissions reductions: recent experience from the UK shows that nuclear power operators are reluctant to invest on "un-subsidised" terms unless there is a guaranteed price floor for carbon which the EU emissions trading scheme does not presently provide.
Responsiveness to uncertainty: As with cost changes, in a world of uncertainty, it is not clear whether emissions fees or cap-and-trade systems are more efficient—it depends on how fast the marginal social benefits of reducing pollution fall with the amount of cleanup e.
Other: The magnitude of the tax will depend on how sensitive the supply of emissions is to the price. The permit price of cap-and-trade will depend on the pollutant market. A tax generates government revenue, but full-auctioned emissions permits can do the same.
A similar upstream cap-and-trade system could be implemented. An upstream carbon tax might be the simplest to administer. Setting up a complex cap-and-trade arrangement that is comprehensive has high institutional needs. Command and control is a system of regulation that prescribes emission limits and compliance methods for each facility or source. It is the traditional approach to reducing air pollution. Command-and-control regulations are more rigid than incentive-based approaches such as pollution fees and cap and trade.
An example of this is a performance standard which sets an emissions goal for each polluter that is fixed and, therefore, the burden of reducing pollution cannot be shifted to the firms that can achieve it more cheaply.
Professional Stock Trading: System Design and Automation9780971853645, 0971853649
As a result, performance standards are likely to be more costly overall. It is possible for a country to reduce emissions using a Command-Control approach, such as regulation, direct and indirect taxes. The cost of that approach differs between countries because the Marginal Abatement Cost Curve MAC — the cost of eliminating an additional unit of pollution — differs by country. International emissions-trading markets were created precisely to exploit differing MACs. Emissions trading through Gains from Trade can be more beneficial for both the buyer and the seller than a simple emissions capping scheme.
Consider two European countries, such as Germany and Sweden. Each can either reduce all the required amount of emissions by itself or it can choose to buy or sell in the market.
Step 1: Time Frame
Suppose Germany can abate its CO 2 at a much cheaper cost than Sweden, i. On the left side of the graph is the MAC curve for Germany. Thus, given the market price of CO 2 allowances, Germany has potential to profit if it abates more emissions than required. On the right side is the MAC curve for Sweden.
Thus, given the market price of CO 2 permits, Sweden has potential to make a cost saving if it abates fewer emissions than required internally, and instead abates them elsewhere. After that it could buy emissions credits from Germany for the price P per unit. The internal cost of Sweden's own abatement, combined with the permits it buys in the market from Germany, adds up to the total required reductions R Req for Sweden.
This represents the "Gains from Trade", the amount of additional expense that Sweden would otherwise have to spend if it abated all of its required emissions by itself without trading. Germany made a profit on its additional emissions abatement, above what was required: it met the regulations by abating all of the emissions that was required of it R Req. Additionally, Germany sold its surplus permits to Sweden, and was paid P for every unit it abated, while spending less than P. Gains from Trade. If the total cost for reducing a particular amount of emissions in the Command Control scenario is called X , then to reduce the same amount of combined pollution in Sweden and Germany, the total abatement cost would be less in the Emissions Trading scenario i.
The example above applies not just at the national level, but also between two companies in different countries, or between two subsidiaries within the same company. The nature of the pollutant plays a very important role when policy-makers decide which framework should be used to control pollution. CO 2 acts globally, thus its impact on the environment is generally similar wherever in the globe it is released. So the location of the originator of the emissions does not matter from an environmental standpoint.
The policy framework should be different for regional pollutants [64] e.
SO 2 and NO x , and also mercury because the impact of these pollutants may differ by location. The same amount of a regional pollutant can exert a very high impact in some locations and a low impact in other locations, so it matters where the pollutant is released. This is known as the Hot Spot problem. A Lagrange framework is commonly used to determine the least cost of achieving an objective, in this case the total reduction in emissions required in a year.
In some cases, it is possible to use the Lagrange optimization framework to determine the required reductions for each country based on their MAC so that the total cost of reduction is minimized. In such a scenario, the Lagrange multiplier represents the market allowance price P of a pollutant, such as the current market price of emission permits in Europe and the USA.
Countries face the permit market price that exists in the market that day, so they are able to make individual decisions that would minimize their costs while at the same time achieving regulatory compliance.