Quantitative Analysis of the Monopolistic Power of Economies in Transition in the International Emissions Trading

The purpose of this study is to analyze the possibility of the monopolistic behavior and the influences of the monopolistic power that can be exercised by a supplier of emissions rights in the international emissions trading market quantitatively. Considering the Kyoto Protocol, because the marginal abatement costs of greenhouse gases (GHG) are extremely different among countries, emissions trading is one of the indispensable methods to achieve the targets certainly and cost-effectively, especially for developed countries. However, because only economies in transition has an excess amount of emissions rights and can be a net seller in the trading market assumed under the Kyoto Protocol, there is possibility that the trading market becomes an imperfect competition market owing to the monopolistic power. In this study, an applied general equilibrium model, the GTAP-E model, is used for the simulation analysis. The analysis is based on the present Kyoto Protocol framework and economies in transition is thought to be the region exercising the monopolistic power. Since the model is static, the year 2010, the middle year of the first commitment period of the Kyoto Protocol, is considered. Also, only CO2 is targeted in GHG. Although the GTAP-E model is used, a model with 10 regions and 10 industrial sectors are considered, which is different from the original. Among the regions, developed countries, except USA and Australia, and economies in transition abate CO2 emissions using emissions trading. As a result of the analysis, it is revealed that the relation between the supply of emissions rights by economies in transition and the benefit is an �ginverse U-shape curve�h and the maximum benefit is brought when the supply amount is about a half of the maximum supply potential. The regional GDP increase is mostly due to the benefit. That is to say, exercising the monopolistic power is economically effective for the region. On the contrary, the world negative influences on emissions abatement efficiency and economy are observed due to the monopoly. When economies in transition supplies emissions rights to maximize the benefit, the world GDP decrease and the increase in the trading price become about 7 times. Moreover, observing the regional influences, GDP decreases in developed countries abating emissions become more than 10 times. These results give an important policy implication to similar problems when designing the post Kyoto Protocol framework if emissions trading is applied.