International emissions trading in a non-cooperative equilibrium
AbstractLinkage of different countries’ domestic permit markets for pollution rights into a single international market alters governments’ incentives, and may trigger adjustments of the number of allocated permits. First, this work finds that in a non-cooperative equilibrium, international emissions trading is likely to increase the total emissions. Second, although trading will give a more efficient cross-country allocation of emissions, efficiency may nevertheless fall, because an already inefficiently low abatement level is likely to be further reduced. Third, we find that large countries are likely to experience losses from linking their permit markets to the permit markets of smaller countries.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 542.
Date of creation: May 2008
Date of revision:
Emissions trading; efficiency; non-cooperative games;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
- 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-2008-05-24 (All new papers)
- NEP-ENE-2008-05-24 (Energy Economics)
- NEP-ENV-2008-05-24 (Environmental Economics)
- NEP-GTH-2008-05-24 (Game Theory)
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- Mads Greaker & Cathrine Hagem, 2010. "Strategic investment in climate friendly technologies: the impact of permit trade," Discussion Papers 615, Research Department of Statistics Norway.
- Judson Jaffe & Robert N. Stavins, 2008.
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- Jaffe, Judson & Stavins, Robert, 2008. "Linkage of Tradable Permit Systems in International Climate Policy Architecture," Working Paper Series rwp08-053, Harvard University, John F. Kennedy School of Government.
- Peter Cramton & Steven Stoft, 2010. "International Climate Games: From Caps to Cooperation," Papers of Peter Cramton 10icg, University of Maryland, Department of Economics - Peter Cramton, revised 2010.
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