Strategic Manipulation on Emissions Trading Banking Program with Fixed Horizon

This paper considers a permit market with both spatial and intertemporal trading. The intertemporal market allows firms to freely borrow or bank permits over a pre-specified period of time. When this period is over, the permit bank has to be balanced, so firms cannot avoid compliance just by borrowing from the future. Market power is introduced by assuming a large dominant agent in a Stackelberg position and a large number of small firms who are nonstrategic but forward looking. The equilibrium is characterized by for the monopoly case and for intermediate cases.