ECOBAS Research Seminar: Sebastián Cea Echenique (University of Los Andes)


In a cap and trade model with an investment in a 2-stage electricity generation capacity with uncertainty, we include limited attention by the social planner. The inclusion of this type of configurations is justified by the fact that setting a precise cap is costly. In our model we define two types of planner rationalities: one oriented to the profits from the sale of rights and the other focused on social welfare. We compute the model for the Chilean case contrasting with the results of Amigo et alii (2021) and carbon neutrality compliance based on the Paris agreement. On the one hand, the results of the Profit oriented model show a significant impact of cap accuracy on the optimal placement of auctioned rights. Simultaneously, this configuration delivers the lowest electricity prices among all models. On the other hand, the Welfare oriented configuration issues the least amount of permits for high carbon budgets.