The European Union’s potential for strategic emissions trading in a post-Kyoto climate agreement
AbstractThe literature suggests that Russia and Ukraine may become large sellers of greenhouse gas emissions permits under the Kyoto Protocol and might exploit their market power to maximize trading profits. The EU countries taken together will probably be net buyers of permits. For any given global target for emission, participation by developing countries with low-cost abatement options would benefit the net buyers of permits because the market price for carbon permits would go down. We explore how the EU could benefit from a broader participation through specific bilateral agreements with developing countries in the post-Kyoto period. The bilateral agreement involves a minimum permit sales requirement which is compensated by a financial transfer from EU to the developing country. Such bilateral agreement enables the EU to act strategically in the permit market on behalf of its member states, although firms in each member state are assumed to be price takers in the permit market. In a numerical simulation we show that an appropriately designed bilateral agreement between the EU and China can cut EU’s total compliance cost by one third.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 530.
Date of creation: Feb 2008
Date of revision:
emissions permits; post-Kyoto climate agreement; strategic permit trading;
Other versions of this item:
- Eyckmans, Johan & Hagem, Cathrine, 2008. "The European Union's potential for strategic emissions trading in a post-Kyoto climate agreement," Working Papers 2008/13, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-01 (All new papers)
- NEP-EEC-2008-03-01 (European Economics)
- NEP-ENE-2008-03-01 (Energy Economics)
- NEP-ENV-2008-03-01 (Environmental Economics)
- NEP-TRA-2008-03-01 (Transition Economics)
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