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Market power in international emissions trading : the impact of U.S. withdrawal from the Kyoto Protocol

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  • Böhringer, Christoph
  • Löschel, Andreas

Abstract

This paper investigates the implications of U.S. withdrawal on environmental effectiveness, economic efficiency, and the distribution of compliance costs taking into account market power of the Former Soviet Union (FSU) on emission permit markets. While exercise of market power on behalf of FSU under U.S. compliance has no environmental impact as compared to competitive permit trade, it prevents the Kyoto Protocol from boiling down to business-as-usual after U.S. withdrawal. Non-compliance of the U.S. increases the efficiency losses from FSU market power and reduces the compliance costs of remaining OECD countries but these gains must be weighted against a dramatic loss in overall environmental effectiveness. Clearly, the big losers from U.S. withdrawal are FSU and its competitive fringe (Central and Eastern Europe) that suffer from a huge decline in permit sales revenues.

Suggested Citation

  • Böhringer, Christoph & Löschel, Andreas, 2001. "Market power in international emissions trading : the impact of U.S. withdrawal from the Kyoto Protocol," ZEW Discussion Papers 01-58, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:5414
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    References listed on IDEAS

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    1. Misiolek, Walter S. & Elder, Harold W., 1989. "Exclusionary manipulation of markets for pollution rights," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 156-166, March.
    2. Eftichios Sartzetakis, 1997. "Tradeable emission permits regulations in the presence of imperfectly competitive product markets: Welfare implications," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 9(1), pages 65-81, January.
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    Citations

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    Cited by:

    1. Christoph Böhringer & Andreas Löschel, 2008. "Climate Policy‐induced Investments in Developing Countries: The Implications of Investment Risks," The World Economy, Wiley Blackwell, vol. 31(3), pages 367-392, March.
    2. Barbara Buchner & Carlo Carraro, 2006. "‘US, China and the Economics of Climate Negotiations’," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 6(1), pages 63-89, March.
    3. Andreas Löschel & Zhong Zhang, 2002. "The economic and environmental implications of the US repudiation of the kyoto protocol and the subsequent deals in Bonn and Marrakech," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 138(4), pages 711-746, December.
    4. Khalil Helioui, 2006. "Coordination internationale des politiques climatiques : quelle efficacité ?," Working Papers hal-00866433, HAL.
    5. Gernot Klepper & Sonja Peterson, 2005. "Trading Hot-Air. The Influence of Permit Allocation Rules, Market Power and the US Withdrawal from the Kyoto Protocol," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 32(2), pages 205-228, October.
    6. Klepper, Gernot & Peterson, Sonja, 2006. "Marginal abatement cost curves in general equilibrium: The influence of world energy prices," Resource and Energy Economics, Elsevier, vol. 28(1), pages 1-23, January.
    7. Sanderson, Todd & Ancev, Tihomir & Betz, Regina, 2008. "Optimal Coverage of Installations in a Carbon Emissions Trading Scheme (ETS)," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6047, Australian Agricultural and Resource Economics Society.
    8. Julien Chevallier, 2009. "Intertemporal Emissions Trading and Market Power: A Dominant Firm with Competitive Fringe Model," Working Papers halshs-00388207, HAL.
    9. Lopez, Ramon E., 2009. "World Economic Crises in Times of Environmental Scarcity and Wealth Concentration," Working Papers 56408, University of Maryland, Department of Agricultural and Resource Economics.
    10. Stronzik, Marcus & Hunt, Alistair & Eckermann, Frauke & Taylor, Tim, 2003. "The Role of Transaction Costs and Risk Premia in the Determination of Climate Change Policy Responses," ZEW Discussion Papers 03-59, ZEW - Leibniz Centre for European Economic Research.
    11. Larson, Donald F. & Ambrosi, Philippe & Dinar, Ariel & Rahman, Shaikh Mahfuzur & Entler, Rebecca, 2008. "Carbon markets, institutions, policies, and research," Policy Research Working Paper Series 4761, The World Bank.
    12. Khalil Helioui, 2006. "Coordination internationale des politiques climatiques : quelle efficacité ?," CIRED Working Papers hal-00866433, HAL.
    13. Klepper, Gernot & Peterson, Sonja, 2002. "US participation, permit allocation, and hot air supply," Open Access Publications from Kiel Institute for the World Economy 4237, Kiel Institute for the World Economy (IfW Kiel).
    14. FitzGerald, John & Bergin, Adele & Conefrey, Thomas & Diffney, Sean & Duffy, David & Kearney, Ide & Lyons, Sean & Malaguzzi Valeri, Laura & Mayor, Karen & Richard S. J. Tol, 2008. "Medium-Term Review 2008-2015, No. 11," Forecasting Report, Economic and Social Research Institute (ESRI), number MTR11, march.
    15. Marzio Galeotti & Carlo Carraro, 2004. "Does Endogenous Technical Change Make a Difference in Climate Policy Analysis? A Robustness Exercise with the FEEM-RICE Model," Working Papers 2004.152, Fondazione Eni Enrico Mattei.

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    More about this item

    Keywords

    climate policy; emission trading; market power;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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