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Policy-business interaction in emissions trading between multiple regions

In: Emissions Trading and Business

Author

Listed:
  • Jürgen Scheffran

    (University of Illinois at Urbana-Campaign)

  • Marian Leimbach

    (Potsdam Institute for Climate Impact Research)

Abstract

Emissions trading helps to bring about emission reductions in regions and business sectors where they are least costly. The cost level highly depends on the absolute level of emission reduction required and the capacity of economies to shift to a carbon-free mode of production. As a framework for understanding this transition and the policy-business interaction, a multi-region framework is used which integrates political decisions on global and regional emission targets, equity considerations, technical choice and the market dynamics of permits. Welfare maximization for each region, subject to production, investment, damage functions and emissions trading costs, results in regional permit threshold prices and a subsequent demand-supply adjustment to an average price. Based on this price, the optimal emission reductions for each region serve as target levels in reaction functions, leading to an iterative dynamic game and Nash equilibria of future emission permits allocation. The model is applied with stylized data for 11 world regions and four cases (business as usual, equal per capita, 10% reductions of baseline, stabilization).

Suggested Citation

  • Jürgen Scheffran & Marian Leimbach, 2006. "Policy-business interaction in emissions trading between multiple regions," Springer Books, in: Ralf Antes & Bernd Hansjürgens & Peter Letmathe (ed.), Emissions Trading and Business, pages 353-367, Springer.
    • Handle: RePEc:spr:sprchp:978-3-7908-1748-5_23
    DOI: 10.1007/3-7908-1748-1_23
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    Cited by:

    1. McCarter, Matthew W. & Budescu, David V. & Scheffran, Jurgen, 2008. "The Give-or-Take-Some Dilemma," Working Papers 08-0100, University of Illinois at Urbana-Champaign, College of Business.

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