Titre: Optimal dynamic regulation of carbon emissions market
We consider the problem of a regulator aiming at reducing the carbon emissions of a set of firms over a finite horizon. The instrument of the regulator is the dynamic allocation of emission allowances to each firm. Firms face idiosyncratic as well as common economic shocks on emissions, linear quadratic abatement cost and can trade allowances to achieve minimisation of total expected costs of abatement and trading and terminal penalty. We show that optimal policies are not unique but share common properties. In particular, all optimal dynamic policies induce a constant abatement effort and a constant price of allowances.
Joint work with Sara Biagini, LUISS, Roma.