Tradable emission permit markets and firm strategies: the case of electricity producers.

Summary This thesis focuses on firms' strategies related to the implementation of a domestic market for tradable emission permits. Since the main experiences with the implementation of such markets (Acid Rain Program, RECLAlM Program, NOx Budget Program and the European carbon market) primarily concern electricity and heat producers, we consider in particular the strategies of electricity companies. In a context of liberalization of the electricity markets, our analysis is oriented in two directions: uncertainty and distortions of competition. Regarding uncertainty, we are interested in the management of permit portfolios, i.e. the choices under uncertainty of buying, selling and banking permits. Concerning the distortions of competition, we consider the manipulation of the permit and/or product market. In particular, we are interested in the interactions between an emission permit market and a wholesale electricity market. From a general perspective, we find that an emissions permit market, even a competitive one, provides additional opportunities for electricity producers to act strategically in wholesale electricity markets. Thus, our analysis attempts to provide regulators with elements for reflection on the possibility of the occurrence of these distortions, as well as indications on the choice of operating rules for the permit market.