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2019-03-26 | Peer Reviewed

Imperfect market, emissions trading scheme, and technology adoption: A case study of an energy-intensive sector

Wang, Xu, Xiaobing Zhang and Lei Zhu. 2019. “Imperfect market, emissions trading scheme, and technology adoption: A case study of an energy-intensive sector.” Energy Economics 81: 142-158.
Download reference Doi:10.1016/j.eneco.2019.03.014

It is widely accepted that the firms included in an emissions trading scheme (ETS) come mostly from oligopolistic industries. The “exclusionary manipulation” of these heterogeneous emitters can distort both output and permit markets and lead to differences in abatement technology adoption. We studied the impacts of asymmetric firms' market power on the diffusion of abatement technologies. A model for technology adoption among heterogeneous firms has been established, which takes into account diversity in production capacity and the integration of firms' strategic behaviour in both the carbon permit and the output markets. Our model reveals that, considering the direct and strategic effects in adoption benefits, firms' production capacity can directly determine their sequence order of adoption, and their market power can accelerate the diffusion of a new abatement technology. A case study of an energy-intensive sector in China is illustrated to support the conclusions derived from the model and help policymakersbetter understand the diffusion of abatement technologies under imperfect market structure.