Bottom-Up Strategic Linking of Carbon Markets: Which Climate Coalitions Would Farsighted Players Form?
AbstractWe present typical scenarios and general insights from a novel dynamic model of farsighted climate coalition formation involving market linkage and cap coordination, using a simple analytical model of the underlying cost-benefit structure. In our model, the six major emitters of CO2 can link domestic cap-and-trade systems to form one or several international carbon markets, and can either choose their emissions caps non-cooperatively or form a hierarchy of cap-coordinating coalitions inside each market. Based on individual and collective rationality and an assumed distribution of bargaining power, we derive scenarios of such a climate coalition formation process which show that a first-best state with a coordinated global carbon market might well emerge bottom-up, and underline the importance of coordinating caps immediately when linking carbon markets. Surprisingly, the process tends to involve less uncertainty when agreements can be terminated unanimously or unilaterally, depending on the level of farsightedness.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2013.48.
Date of creation: May 2013
Date of revision:
Climate Policy; International Environmental Agreements; Cap and Trade; Coalition Formation; Farsightedness;
Find related papers by JEL classification:
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-CDM-2013-06-16 (Collective Decision-Making)
- NEP-ENE-2013-06-16 (Energy Economics)
- NEP-ENV-2013-06-16 (Environmental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael Finus & Ekko van Ierland, 2003.
"Stability of Climate Coalitions in a Cartel Formation Game,"
2003.61, Fondazione Eni Enrico Mattei.
- Michael Finus & Ekko Ierland & Rob Dellink, 2006. "Stability of Climate Coalitions in a Cartel Formation Game," Economics of Governance, Springer, vol. 7(3), pages 271-291, August.
- Carbone, Jared C. & Helm, Carsten & Rutherford, Thomas F., 2009.
"The case for international emission trade in the absence of cooperative climate policy,"
Journal of Environmental Economics and Management,
Elsevier, vol. 58(3), pages 266-280, November.
- Carbone, Jared C. & Helm, Carsten & Rutherford, Thomas F., 2008. "The Case for International Emission Trade in the Absence of Cooperative Climate Policy," Darmstadt Discussion Papers in Economics 35491, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
- Carraro, Carlo & Siniscalco, Domenico, 1993.
"Strategies for the international protection of the environment,"
Journal of Public Economics,
Elsevier, vol. 52(3), pages 309-328, October.
- Carraro, Carlo & Siniscalco, Domenico, 1991. "Strategies for the International Protection of the Environment," CEPR Discussion Papers 568, C.E.P.R. Discussion Papers.
- repec:dar:vpaper:33631 is not listed on IDEAS
- Helm, Carsten, 2003. "International emissions trading with endogenous allowance choices," Journal of Public Economics, Elsevier, vol. 87(12), pages 2737-2747, December.
- Ray, D. & Vohra, R., 1993.
"Equilibrium Binding Agreements,"
21, Boston University - Department of Economics.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (barbara racah).
If references are entirely missing, you can add them using this form.