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The European Union's potential for strategic emissions trading through permit sales contracts

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Author Info

  • Eyckmans, Johan
  • Hagem, Cathrine

Abstract

Strategic market behavior by permit sellers will harm the European Union (EU) as it 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 permit sales requirement, complemented by a financial transfer from the EU to the other contract party. Such agreements would 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 could significantly cut the EU's total compliance cost. This result is robust for a wide range of parameterizations of the simulation model.

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Bibliographic Info

Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 1 (January)
Pages: 247-267

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Handle: RePEc:eee:resene:v:33:y:2011:i:1:p:247-267

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Web page: http://www.elsevier.com/locate/inca/505569

Related research

Keywords: Climate policy Emissions trading Market power Post-Kyoto;

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Cited by:
  1. Akın Olçum, Gökçe & Yeldan, Erinç, 2013. "Economic impact assessment of Turkey's post-Kyoto vision on emission trading," Energy Policy, Elsevier, vol. 60(C), pages 764-774.

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