Department of Political Science

The US SO2 Auction: Analysis and Generalization

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An annual discriminative and revenue-neutral auction is linked to the new Acid Rain Program which allows electric utilities all over the US to trade SO2 emission permits. This innovative SO2 auction distributes 2% of the permits in circulation and takes place at the Chicago Board of Trade. Early results showed that the auction generated a clearing price signal lower than the market price. Now the auction price seems to be determined by the outside market price. Still, in the important starting phase, a non-discriminative auction design would probably have generated better price signals since potentially severe downward biases in both seller price offers and buyer bids are due to the discriminative feature of the EPA auction.
Original languageEnglish
JournalEnergy Economics
Volume21
Issue5
Pages (from-to)403-16
Number of pages386
ISSN0140-9883
Publication statusPublished - 1999

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