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Is there potential for government participation in flexibility mechanisms? - Evaluating the Finnish case

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  • Honkatukia, Juha

Abstract

The European directives on emission trade and flexible mechanisms are making new kinds of economic instruments available for the implementation of climate policies. In addition to the EUwide trade in emission rights, governments will have the option to allow joint implementation between firms in the member countries. However, they will also have to define the scope for the use of these flexibility mechanisms. This study considers the effects of using these instruments in Finland, baring in mind the role the government might have in connection with the various mechanisms. There are several ways in which the government can affect the cost effectiveness of climate policies by either enhancing the functioning of the markets or by directly participating in them. The study uses the economic-engineering EV-model to assess three scenarios for government participation. We find that there is significant potential for reducing the costs of emission reductions by direct government participation in flexibility mechanisms especially in the long run.

Suggested Citation

  • Honkatukia, Juha, 2006. "Is there potential for government participation in flexibility mechanisms? - Evaluating the Finnish case," Conference papers 331472, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331472
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