IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_2809.html
   My bibliography  Save this paper

The European Union's Potential for Strategic Emissions Trading through Minimal Permit Sale Contracts

Author

Listed:
  • Johan Eyckmans
  • Cathrine Hagem

Abstract

Strategic market behavior by permit sellers will harm the European Union as the EU as a whole is expected to become a large net buyer of permits in a follow-up agreement to the Kyoto Protocol. In this paper we explore how the EU could benefit from making permit trade agreements with non-EU countries. These trade agreements involve a minimum permit sales requirement complemented by a financial transfer from the EU to the other contract party. Such agreements enable the EU to act strategically in the permit market on behalf of its member states, although each member state is assumed to behave as a price taker in the permit market. Using a stylized numerical simulation model we show that an appropriately designed permit trade agreement between the EU and China can cut EU’s total compliance cost significantly. This result is robust for a wide range of parameterizations of the simulation model.

Suggested Citation

  • Johan Eyckmans & Cathrine Hagem, 2009. "The European Union's Potential for Strategic Emissions Trading through Minimal Permit Sale Contracts," CESifo Working Paper Series 2809, CESifo.
    • Handle: RePEc:ces:ceswps:_2809
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp2809.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(4), pages 753-765.
    2. Karsten Neuhoff & Kim Keats Martinez & Misato Sato, 2006. "Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 73-91, January.
    3. Cabral, Luis M. B., 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, April.
    4. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
    5. Parkash Chander & Henry Tulkens, 2006. "A Core-Theoretic Solution for the Design of Cooperative Agreements on Transfrontier Pollution," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 176-193, Springer.
    6. Richard B. Stewart & Jonathan B. Wiener, 2003. "Reconstructing Climate Policy," Books, American Enterprise Institute, number 53156, September.
    7. Criqui, Patrick & Mima, Silvana & Viguier, Laurent, 1999. "Marginal abatement costs of CO2 emission reductions, geographical flexibility and concrete ceilings: an assessment using the POLES model," Energy Policy, Elsevier, vol. 27(10), pages 585-601, October.
    8. Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
    9. den Elzen, Michel G. J. & de Moor, Andre P. G., 2002. "Analyzing the Kyoto Protocol under the Marrakesh Accords: economic efficiency and environmental effectiveness," Ecological Economics, Elsevier, vol. 43(2-3), pages 141-158, December.
    10. Christoph Bohringer, 2002. "Climate Politics from Kyoto to Bonn: From Little to Nothing?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 51-71.
    11. Carlo Carraro & Barbara Buchner, 2003. "China and the Evolution of the Present Climate Regime," Working Papers 2003.103, Fondazione Eni Enrico Mattei.
    12. Peter Bohm, 2002. "Improving Cost-effectiveness and Facilitating Participation of Developing Countries in International Emissions Trading," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 2(3), pages 261-273, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Johan Eyckmans & Cathrine Hagem, 2008. "The European Union's potential for strategic emissions trading in a post-Kyoto climate agreement," Discussion Papers 530, Statistics Norway, Research Department.
    3. László Á. Kóczy, 2018. "Partition Function Form Games," Theory and Decision Library C, Springer, number 978-3-319-69841-0, September.
    4. Johan Eyckmans & Michael Finus, 2006. "New roads to international environmental agreements: the case of global warming," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 7(4), pages 391-414, December.
    5. Miguel Borrero & Santiago J. Rubio, 2022. "An adaptation-mitigation game: does adaptation promote participation in international environmental agreements?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 22(3), pages 439-479, September.
    6. Marie-Laure Cabon-Dhersin & Shyama V. Ramani, 2006. "Can Social Externalities Solve the Small Coalitions Puzzle in International Environmental Agreements?," Economics Bulletin, AccessEcon, vol. 17(4), pages 1-8.
    7. van der Pol, Thomas & Weikard, Hans-Peter & van Ierland, Ekko, 2012. "Can altruism stabilise international climate agreements?," Ecological Economics, Elsevier, vol. 81(C), pages 112-120.
    8. Effrosyni Diamantoudi & Eftichios S. Sartzetakis, 2006. "Stable International Environmental Agreements: An Analytical Approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(2), pages 247-263, May.
    9. Carraro, Carlo & Bosello, Francesco & Buchner, Barbara & Raggi, Davide, 2003. "Can Equity Enhance Efficiency? Some Lessons from Climate Negotiations," CEPR Discussion Papers 3606, C.E.P.R. Discussion Papers.
    10. Nagashima, Miyuki & Dellink, Rob & van Ierland, Ekko & Weikard, Hans-Peter, 2009. "Stability of international climate coalitions -- A comparison of transfer schemes," Ecological Economics, Elsevier, vol. 68(5), pages 1476-1487, March.
    11. Håkon Sælen, 2016. "Side-payments: an effective instrument for building climate clubs?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 16(6), pages 909-932, December.
    12. Nahid Masoudi, 2022. "Designed to be stable: international environmental agreements revisited," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 22(4), pages 659-672, December.
    13. BRECHET, Thierry & GERARD, François & TULKENS, Henry, 2007. "Climate coalitions: a theoretical and computational appraisal," LIDAM Discussion Papers CORE 2007003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. Karp, Larry & Sakamoto, Hiroaki, 2021. "Sober optimism and the formation of international environmental agreements," Journal of Economic Theory, Elsevier, vol. 197(C).
    15. Dritan Osmani, "undated". "A note on optimal transfer schemes, stable coalition for environmental protection and joint maximization assumption," Working Papers FNU-176, Research unit Sustainability and Global Change, Hamburg University.
    16. Carlo Carraro & Carmen Marchiori, 2003. "Stable coalitions," Chapters, in: Carlo Carraro (ed.), The Endogenous Formation of Economic Coalitions, chapter 5, Edward Elgar Publishing.
    17. Marie-Laure Cabon-Dhersin & Shyama Ramani, 2006. "Les externalités sociales permettent-elles de résoudre la controverse théorique des « petites coalitions stables » dans les accords environnementaux ?," Revue économique, Presses de Sciences-Po, vol. 57(3), pages 431-438.
    18. Marta Biancardi & Giovanni Villani, 2009. "International Environmental Agreements with Asymmetric Countries," Quaderni DSEMS 09-2009, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
    19. 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.
    20. Hintermann, Beat, 2010. "Allowance price drivers in the first phase of the EU ETS," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 43-56, January.

    More about this item

    Keywords

    emissions permit; post-Kyoto climate agreement; strategic permit trade;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2809. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.