Banning banking in EU emissions trading?
AbstractAdmitting banking in emissions trading systems reduces overall compliance costs by allowing for inter-temporal flexibility: cost savings can be traded over time. However, unless individual EU Member States (MS) decide differently, the transfer of unused allowances from the period of 2005-2007 into the first commitment period under the Kyoto Protocol, i.e. 2008�2012, will be prohib-ited. In this paper, we first explore the implications of such a ban on banking when initial emission targets are lenient. This analysis is based on a simulation which was recently carried out in Germany with companies and with a student control group. The findings suggest that an EU-wide ban on banking would lead to efficiency losses in addition to those losses which arise from the lack of inter-temporal flexibility. Second, we use simple game-theoretic considerations to argue that, under reasonable assumptions, such an EU-wide ban on banking will be the equilibrium outcome. Thus, to avoid a possible prisoners� dilemma, MS should co-ordinate their banking decisions.
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Bibliographic InfoPaper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 04-60.
Length: 33 pages
Date of creation: 03 Dec 2004
Date of revision:
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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Other versions of this item:
- NEP-ALL-2004-12-12 (All new papers)
- NEP-CMP-2004-12-12 (Computational Economics)
- NEP-ENE-2004-12-12 (Energy Economics)
- NEP-ENV-2004-12-12 (Environmental Economics)
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