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Supplementarity: An Invitation to Monopsony?

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  • A. Denny Ellerman
  • Ian Sue Wing

Abstract

Article 17 of the Kyoto Protocol allows Annex B parties to meet their greenhouse gas emissions commitments by emissions trading so long as such trading is "supplemental" to domestic abatement actions. Whether and how "supplemental" should be defined is one of the most contentious issues in the post-Kyoto climate negotiations. We demonstrate that implementing supplementarity by imposing concrete ceilings on permit imports in a market for tradable emissions rights gives rise to monopsonistic effects similar to those that characterize a buyers' cartel. We assess the EU proposal on supplementarity in this context. Our results show that, under the most favorable assumptions, the proposal avoids the redistributive effects of an import limit, albeit at added cost. Under less favorable assumptions, namely, that the required demonstrations of verifiable abatement cannot be made, the EU proposal severely limits emissions trading and the associated reductions in the costs of achieving the Kyoto commitments.

Suggested Citation

  • A. Denny Ellerman & Ian Sue Wing, 2000. "Supplementarity: An Invitation to Monopsony?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 29-59.
    • Handle: RePEc:aen:journl:2000v21-04-a02
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    Cited by:

    1. Simon Quemin & Christian Perthuis, 2019. "Transitional Restricted Linkage Between Emissions Trading Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 1-32, September.
    2. Eyckmans, Johan & Kverndokk, Snorre, 2010. "Moral concerns on tradable pollution permits in international environmental agreements," Ecological Economics, Elsevier, vol. 69(9), pages 1814-1823, July.
    3. Springer, Urs, 2003. "International diversification of investments in climate change mitigation," Ecological Economics, Elsevier, vol. 46(1), pages 181-193, August.
    4. Zhang, ZhongXiang, 2001. "An economic assessment of the Kyoto Protocol using a global model based on the marginal abatement costs of 12 regions," MPRA Paper 13148, University Library of Munich, Germany.
    5. John Foster & Liam Wagner & Phil Wild & Junhua Zhao & Lucas Skoofa & Craig Froome, 2011. "Market and Economic Modelling of the Intelligent Grid: End of Year Report 2009," Energy Economics and Management Group Working Papers 09, School of Economics, University of Queensland, Australia.
    6. Liu, Xuemei, 2008. "The monetary compensation mechanism: An alternative to the clean development mechanism," Ecological Economics, Elsevier, vol. 66(2-3), pages 289-297, June.
    7. Jean Charles Hourcade & Michel Aglietta & Baptiste Perrissin-Fabert, 2014. "Transition to a Low-Carbon society and sustainable economic recovery, a monetary-based financial device," Post-Print hal-01692593, HAL.
    8. Zhang, ZhongXiang, 2001. "An assessment of the EU proposal for ceilings on the use of Kyoto flexibility mechanisms," Ecological Economics, Elsevier, vol. 37(1), pages 53-69, April.
    9. Frank Jotzo & Axel Michaelowa, 2002. "Estimating the CDM market under the Marrakech Accords," Climate Policy, Taylor & Francis Journals, vol. 2(2-3), pages 179-196, September.
    10. Erik Haites & Fanny Missfeldt, 2001. "Liability rules for international trading of greenhouse gas emissions quotas," Climate Policy, Taylor & Francis Journals, vol. 1(1), pages 85-108, March.
    11. Snorre Kverndokk, 2013. "Moral positions on tradable permit markets," Chapters, in: Roger Fouquet (ed.), Handbook on Energy and Climate Change, chapter 22, pages 490-499, Edward Elgar Publishing.
    12. Li, M.W. & Li, Y.P. & Huang, G.H., 2011. "An interval-fuzzy two-stage stochastic programming model for planning carbon dioxide trading under uncertainty," Energy, Elsevier, vol. 36(9), pages 5677-5689.
    13. Godal, Odd & Klaassen, Ger, 2003. "Compliance and Imperfect Intertemporal Carbon Trading," Working Papers in Economics 09/03, University of Bergen, Department of Economics.
    14. Jotzo, Frank & Michaelowa, Axel, 2001. "Estimating the CDM Market Under the Bonn Agreement," Discussion Paper Series 26160, Hamburg Institute of International Economics.
    15. Cathrine Hagem, 2008. "Incentives for merger in a noncompetitive permit market," Discussion Papers 568, Statistics Norway, Research Department.
    16. Babiker, Mustafa H. & Metcalf, Gilbert E. & Reilly, John, 2003. "Tax distortions and global climate policy," Journal of Environmental Economics and Management, Elsevier, vol. 46(2), pages 269-287, September.
    17. Eyckmans, Johan & Hagem, Cathrine, 2011. "The European Union's potential for strategic emissions trading through permit sales contracts," Resource and Energy Economics, Elsevier, vol. 33(1), pages 247-267, January.
    18. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, vol. 25(5), pages 527-551, September.
    19. Larson, Donald F. & Ambrosi, Philippe & Dinar, Ariel & Rahman, Shaikh Mahfuzur & Entler, Rebecca, 2008. "Carbon markets, institutions, policies, and research," Policy Research Working Paper Series 4761, The World Bank.
    20. Godal, Odd & Klaassen, Ger, 2006. "Carbon trading across sources and periods constrained by the Marrakesh Accords," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 308-322, May.

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    JEL classification:

    • F0 - International Economics - - General

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