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Strategic Partitioning of Emissions Allowances. Under the EU Emission Trading Scheme

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The EU Emission Trading Scheme (ETS) is breaking new ground in the experience with emission trading regimes across multiple jurisdictions. Since the EU ETS covers only some industries, it implies a hybrid emission control scheme where EU member states must apply complementary domestic emissions regulation for the non-trading sectors of their economies in order to comply with their national emission reduction targets. The EU ETS thus opens up for strategic partitioning of national emissions budgets by the member states between trading and non-trading sectors. In this paper we examine the potential effects of such strategic behavior on compliance cost and emissions prices. We show that concerns on efficiency losses from strategic partitioning are misplaced if all the member states behave in a Nash-Cournot manner. However, if a single country takes the official partitioning of the other countries as a reference point, there is substantial scope for exploiting market power.

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  • Christoph Böhringer & Knut Einar Rosendahl, 2008. "Strategic Partitioning of Emissions Allowances. Under the EU Emission Trading Scheme," Discussion Papers 538, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:538
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    Cited by:

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    2. Jan Abrell & Sebastian Rausch & Hidemichi Yonezawa, 2019. "Higher Price, Lower Costs? Minimum Prices in the EU Emissions Trading Scheme," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 446-481, April.
    3. Böhringer, Christoph & Dijkstra, Bouwe & Rosendahl, Knut Einar, 2014. "Sectoral and regional expansion of emissions trading," Resource and Energy Economics, Elsevier, vol. 37(C), pages 201-225.
    4. Naber, S.K. & de Ree, D.A. & Spliet, R. & van den Heuvel, W., 2015. "Allocating CO2 emission to customers on a distribution route," Omega, Elsevier, vol. 54(C), pages 191-199.
    5. Tscharaktschiew, Stefan & Hirte, Georg, 2010. "The drawbacks and opportunities of carbon charges in metropolitan areas -- A spatial general equilibrium approach," Ecological Economics, Elsevier, vol. 70(2), pages 339-357, December.
    6. Yanming Sun & Lin Zhang, 2019. "Full Separation or Full Integration? An Investigation of the Optimal Renewables Policy Employing Tradable Green Certificate Systems in Two Countries’ Electricity Markets," IJERPH, MDPI, vol. 16(24), pages 1-17, December.
    7. Giovanni Marin & Marianna Marino & Claudia Pellegrin, 2018. "The Impact of the European Emission Trading Scheme on Multiple Measures of Economic Performance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(2), pages 551-582, October.
    8. Bouwe Dijkstra & Edward Manderson & Tae-Yeoun Lee, 2011. "Extending the Sectoral Coverage of an International Emission Trading Scheme," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(2), pages 243-266, October.
    9. Abrell, Jan & Rausch, Sebastian, 2017. "Combining price and quantity controls under partitioned environmental regulation," Journal of Public Economics, Elsevier, vol. 145(C), pages 226-242.
    10. Venmans, Frank, 2012. "A literature-based multi-criteria evaluation of the EU ETS," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(8), pages 5493-5510.
    11. Wang, Xu & Zhu, Lei & Liu, Pengfei, 2021. "Manipulation via endowments: Quantifying the influence of market power on the emission trading scheme," Energy Economics, Elsevier, vol. 103(C).
    12. Giovanni Marin & Marianna Marino & Claudia Pellegrin, 2018. "The impact of the European Union Emission Trading Scheme on Multiple Measures of Economic Performance," Post-Print hal-01768870, HAL.
    13. Wang, Xu & Zhu, Lei & Fan, Ying, 2018. "Transaction costs, market structure and efficient coverage of emissions trading scheme: A microlevel study from the pilots in China," Applied Energy, Elsevier, vol. 220(C), pages 657-671.
    14. Ying Fan & Xu Wang, 2014. "Which Sectors Should Be Included in the Ets in the Context of a Unified Carbon Market in China?," Energy & Environment, , vol. 25(3-4), pages 613-634, April.
    15. Bouwe R. Dijkstra & Edward Manderson & Tae-Yeoun Lee, 2008. "Partial International Emission Trading," Discussion Papers 08/27, University of Nottingham, GEP.
    16. Lin, Boqiang & Jiang, Zhujun & Zhang, Peng, 2011. "Allocation of sulphur dioxide allowance – An analysis based on a survey of power plants in Fujian province in China," Energy, Elsevier, vol. 36(5), pages 3120-3129.

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    More about this item

    Keywords

    Emissions Trading; Allocation of Quotas; Strategic Behavior;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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