Emissions trading with rolling horizons

We develop an emission permits trading model where covered firms can (1) utilize rolling planning horizons to deal with uncertainty and (2) exhibit bounded responsiveness supply-side control policies. calibrate the reproduce annual market outcomes in EU ETS over 2008–2018 show that a finite horizon reconciles banking dynamics discount rates implied by futures contracts’ yield curves. It also replicates price well compared standard infinite horizon, including new regime induced 2018 reform. then use our calibrated decompose impacts of reform’s design elements, quantify how they hinge on firms’ responsiveness, highlight important implications for policy design. For instance, when horizons, Market Stability Reserve improve effectiveness frontloading abatement efforts induce lower cumulative emissions horizon.