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International climate regime beyond 2012 - are quota allocation rules robust to uncertainty?

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  • Lecocq, Franck
  • Crassous, Renaud

Abstract

Bringing the United States and major developing countries to control their greenhouse gas emissions will be the key challenge for the international climate regime beyond the Kyoto Protocol. But in the current quantity-based coordination, large uncertainties surrounding future emissions and future abatement opportunities make the costs of any commitment very difficult to assess ex ante, hence a strong risk that the negotiation will be stalled. The authors use a partial equilibrium model of the international allowance market to quantify the economic consequences of the main post-Kyoto quota allocation rules proposed in the literature and to assess how robust these consequences are to uncertainty on future population, economic, and emissions growth. They confirm that, regardless of the rule selected, the prices of allowances and the net costs of climate mitigation for all parties are very sensitive to uncertainty, and in some scenarios very large. This constitutes a strong barrier against adopting any of these schemes if no additional mechanism is introduced to limit the uncertainty on costs. On the other hand, parties'preferred (least-cost) rules are essentially robust to uncertainty. And although these preferences differ across countries, the authors'analysis suggest some bargaining is possible if developing countries make a commitment and join the allowance market earlier in exchange for tighter quotas in the North. This underscores the importance of the rules governing the entry of new parties into the coordination. But the magnitude of the win-win potential strongly depends on how different abatement costs are assumed to be between industrial and developing countries, and on how long that gap is assumed to persist.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3000.

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Date of creation: 31 Mar 2003
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Handle: RePEc:wbk:wbrwps:3000

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Related research

Keywords: Montreal Protocol; Climate Change; Global Environment Facility; Environmental Economics&Policies; Economic Theory&Research; Environmental Economics&Policies; Climate Change; Energy and Environment; Carbon Policy and Trading; Montreal Protocol;

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References

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  1. Jean-Charles Hourcade & Philippe Ambrosi & Stéphane Hallegatte & Franck Lecocq & Patrice Dumas & Minh Ha-Duong, 2003. "Optimal control models and elicitation of attitudes towards climate damages," Post-Print halshs-00000966, HAL.
  2. William D. Nordhaus & Joseph G. Boyer, 1998. "Requiem for Kyoto: An Economic Analysis of the Kyoto Protocol," Cowles Foundation Discussion Papers 1201, Cowles Foundation for Research in Economics, Yale University.
  3. Lecocq, Franck & Hourcade, Jean-Charles & Ha Duong, Minh, 1998. "Decision making under uncertainty and inertia constraints: sectoral implications of the when flexibility," Energy Economics, Elsevier, vol. 20(5-6), pages 539-555, December.
  4. Ringius, Lasse & Torvanger, Asbjorn & Holtsmark, Bjart, 1998. "Can multi-criteria rules fairly distribute climate burdens?: OECD results from three burden sharing rules," Energy Policy, Elsevier, vol. 26(10), pages 777-793, August.
  5. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-85, September.
  6. Ridgley, Mark A, 1996. "Fair sharing of greenhouse gas burdens," Energy Policy, Elsevier, vol. 24(6), pages 517-529, June.
  7. Laurent Viguier & Michel Trommetter & Patrick Criqui & Odile Blanchard, 2000. "Au-delà de Kyoto : enjeux d'équité et d'efficacité dans la négociation sur le changement climatique," Économie et Prévision, Programme National Persée, vol. 143(2), pages 15-35.
  8. Kenneth J. Arrow, 1996. "Discounting, Morality, and Gaming," Working Papers 97004, Stanford University, Department of Economics.
  9. Franck Lecocq & Karan Capoor, . "State and Trends of the Carbon Market 2003," World Bank Other Operational Studies 13416, The World Bank.
  10. Burton, Michael, 1985. "The Implementation of the EC Milk Quota," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 12(4), pages 461-71.
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Cited by:
  1. repec:hal:ciredw:hal-00866572 is not listed on IDEAS
  2. Peterson, Sonja, 2006. "Uncertainty and economic analysis of climate change : a survey of approaches and findings," Open Access Publications from Kiel Institute for the World Economy 3778, Kiel Institute for the World Economy (IfW).
  3. Franck Lecocq & Jean-Charles Hourcade, 2012. "Unspoken ethical issues in the climate affair: Insights from a theoretical analysis of negotiation mandates," Economic Theory, Springer, vol. 49(2), pages 445-471, February.
  4. Binay Kumar Ray & B.Sudhakara Reddy, 2007. "Decomposition of Energy Consumption and Energy Intensity in Indian Manufacturing Industries," Energy Working Papers 22327, East Asian Bureau of Economic Research.
  5. Jean-Charles Hourcade & P.R. Shukla & Sandrine Mathy, 2008. "Cutting the Climate-Development Gordian Knot - Economic options in a politically constrained world," Post-Print halshs-00366286, HAL.
  6. repec:hal:wpaper:hal-00866572 is not listed on IDEAS
  7. Binay Kumar Ray & B. Sudhakara Reddy, 2007. "Decomposition of energy consumption and energy intensity in Indian manufacturing industries," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2007-020, Indira Gandhi Institute of Development Research, Mumbai, India.
  8. Stefan Weishaar, 2007. "CO 2 emission allowance allocation mechanisms, allocative efficiency and the environment: a static and dynamic perspective," European Journal of Law and Economics, Springer, vol. 24(1), pages 29-70, August.

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