Dear Armschairs, emission trading literature attribute grandfathering often the risk strategic behavior of firms to prevent newcomer. They pile up permits to inflate price of permits and in doing so, they save their market position. It seems me odd. First, if a lot of firms sell on the permit market price corresponds to marginal costs of avoidance. Every firm bears this cost, thats the intention of the instrument. If one firm controlls a wide share of the market, then we have another problem. To rise the price of permits the firm has to pile up a lot of permits and face opportunity costs. Its opportunity cost are bigger than newcommers cost, because of firms big market share. If the price of permits increase other firms sell permits end drive the price down again. Thats why the firm has to pile up more and more permits to keep a high price. They lose more than newcommers. What do you think about my interpretation of this problem?
Steffen
