Climate Policy

Climate Policy 5 (2005) 97–107

Research Article

The choice of multiple or single auctions in emissions trading

Svante Mandell

Received 22 August 2003 ; received in revised form 14 January 2004 ; accepted 7 September 2004

Whether CO₂ permit auctions should be held on one, several or many occasions per commitment period has not been discussed at any length in the literature. When at all observed, auction frequency has often been set at once per month or quarter. Here, it is argued that for reasons of efficiency, it is generally best to have just one single auction per commitment period. The arguments given relate to the role played by such factors as emission trading design, auction design, market power, transaction costs and, in particular, ‘the winner's curse’.

Keywords: Emissions trading; Allocation; Auctions; Auction frequency; Winner's curse

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