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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 EUproposal 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, , vol. 21(4), pages 29-59, October.
    • Handle: RePEc:sae:enejou:v:21:y:2000:i:4:p:29-59
    DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No4-2
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    References listed on IDEAS

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    1. Ellerman, A. Denny & Jacoby, Henry D. & Decaux, Annelene, 1998. "The effects on developing countries of the Kyoto Protocol and carbon dioxide emissions trading," Policy Research Working Paper Series 2019, The World Bank.
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