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Banning banking in EU emissions trading?

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Author Info

  • Schleich, Joachim

    (Fraunhofer Institute for Systems and Innovations Research, Karlsruhe)

  • Ehrhart, Karl-Martin

    ()
    (Universitaet Karlsruhe)

  • Hoppe, Christian

    ()
    (Universitaet Karlsruhe)

  • Seifert, Stefan

    (Universitaet Karlsruhe, IWM)

Abstract

Admitting 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 Info

Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 04-60.

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Length: 33 pages
Date of creation: 03 Dec 2004
Date of revision:
Handle: RePEc:xrs:sfbmaa:04-60

Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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References

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  1. Plott, Charles R, 1982. "Industrial Organization Theory and Experimental Economics," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1485-1527, December.
  2. Juan Pablo Montero, 2002. "The Temporal Efficiency of SO2 Emissions Trading," Documentos de Trabajo 225, Instituto de Economia. Pontificia Universidad Católica de Chile..
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  8. Loewenstein, George, 1999. "Experimental Economics from the Vantage-Point of Behavioural Economics," Economic Journal, Royal Economic Society, vol. 109(453), pages F23-34, February.
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    • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, December.
  10. Akhurst, Mark & Morgheim, Jeff & Lewis, Rachel, 2003. "Greenhouse gas emissions trading in BP," Energy Policy, Elsevier, vol. 31(7), pages 657-663, June.
  11. R. Andrew Muller & Stuart Mestelman, 1998. "What have we learned from emissions trading experiments?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 225-238.
  12. R. Andrew Muller, 1999. "Experimental Methods for Research into Trading of Greenhouse Gas Emissions," Department of Economics Working Papers 1999-14, McMaster University.
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