Title: Efficient auction mechanisms for carbon emission trading scheme

Authors: Mingrong Wang; Mingxi Wang; Yi Hu; Chuangyin Dang

Addresses: School of Economics, Capital University of Economics and Business, Beijing 100070, China ' School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China ' School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China ' Department of Manufacturing Engineering & Engineering Management, City University of Hong Kong, Kowloon, Hong Kong

Abstract: This paper argues several auction mechanisms, and examines their allocation efficiency for carbon emission rights. Given the definitions of the demand correspondence and the efficient allocation, we obtain that: (1) under the English auction with the 'going, going, gone' ending rule, the straightforward bidding strategy is dominant in the sense that it makes the bidders avoid the risk of loss, and the bidding strategy leads to an efficient assignment; (2) under the sequential ascending auction and the Vickrey auction, truth-telling is not only the most preferred bidding strategy to the bidders, but also an efficient allocation strategy; (3) under the dynamic process auction, sincere bidding is a weakly dominant bidding strategy and the associated allocation is efficient; and (4) in the first-price auction, the bidders have the symmetric Bayes-Nash equilibrium bidding strategy, while the seller's revenue equals that in the Vickrey auction and is higher than that in the uniform-price auction.

Keywords: carbon emission rights; bidding strategy; allocation efficiency; auction mechanisms; carbon emissions; CO2; carbon dioxide; emissions trading scheme; EU ETS; emissions reduction; auctions.

DOI: 10.1504/IJGEI.2016.074000

International Journal of Global Energy Issues, 2016 Vol.39 No.1/2, pp.108 - 128

Received: 04 Sep 2014
Accepted: 02 Sep 2015

Published online: 29 Dec 2015 *

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