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Supplementarity: An Invitation to Monopsony?

Listed author(s):
  • A. Denny Ellerman
  • Ian Sue Wing
Registered author(s):

    Article 17 of the Kyoto Protocol allows Annex B parties to meet their greenhouse gas emissions commitments by emissions trading so long as such trading is "supplemental" to domestic abatement actions. Whether and how "supplemental" should be defined is one of the most contentious issues in the post-Kyoto climate negotiations. We demonstrate that implementing supplementarity by imposing concrete ceilings on permit imports in a market for tradable emissions rights gives rise to monopsonistic effects similar to those that characterize a buyers' cartel. We assess the EU proposal on supplementarity in this context. Our results show that, under the most favorable assumptions, the proposal avoids the redistributive effects of an import limit, albeit at added cost. Under less favorable assumptions, namely, that the required demonstrations of verifiable abatement cannot be made, the EU proposal severely limits emissions trading and the associated reductions in the costs of achieving the Kyoto commitments.

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    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume21 (2000)
    Issue (Month): Number 4 ()
    Pages: 29-59

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    Handle: RePEc:aen:journl:2000v21-04-a02
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