IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v38y2010i4p1787-1796.html

The hedge value of international emissions trading under uncertainty

Author

Listed:
  • Webster, Mort
  • Paltsev, Sergey
  • Reilly, John

Abstract

This paper estimates the value of international emissions trading, focusing on a here-to-fore neglected component; its value as a hedge against uncertainty. Much analysis has been done of the Kyoto Protocol and other potential international greenhouse gas mitigation policies comparing the costs of achieving emission targets with and without trading. These studies often show large cost reductions for all Parties under trading compared to a no trading case. We investigate the welfare gains of including emissions trading in the presence of uncertainty in economic growth rates, using both a partial equilibrium model based on marginal abatement cost curves and a computable general equilibrium model. We find that the hedge value of international trading is small relative to its value in reallocating emissions reductions when the burden sharing scheme does not resemble a least cost allocation. We also find that the effects of pre-existing tax distortions and terms of trade dominate the hedge value of trading. We conclude that the primary value of emissions trading in international agreements is as a burden sharing or wealth transfer mechanism and should be judged accordingly.

Suggested Citation

  • Webster, Mort & Paltsev, Sergey & Reilly, John, 2010. "The hedge value of international emissions trading under uncertainty," Energy Policy, Elsevier, vol. 38(4), pages 1787-1796, April.
    • Handle: RePEc:eee:enepol:v:38:y:2010:i:4:p:1787-1796
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301-4215(09)00904-5
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Webster, Mort & Cho, Cheol-Hung, 2006. "Analysis of variability and correlation in long-term economic growth rates," Energy Economics, Elsevier, vol. 28(5-6), pages 653-666, November.
    2. repec:aen:journl:1997v18-03-a02 is not listed on IDEAS
    3. J. Reilly & R. Prinn & J. Harnisch & J. Fitzmaurice & H. Jacoby & D. Kicklighter & J. Melillo & P. Stone & A. Sokolov & C. Wang, 1999. "Multi-gas assessment of the Kyoto Protocol," Nature, Nature, vol. 401(6753), pages 549-555, October.
    4. repec:aen:journl:2004v25-02-a02 is not listed on IDEAS
    5. McFarland, J. R. & Reilly, J. M. & Herzog, H. J., 2004. "Representing energy technologies in top-down economic models using bottom-up information," Energy Economics, Elsevier, vol. 26(4), pages 685-707, July.
    6. repec:aen:journl:1999si-a02 is not listed on IDEAS
    7. Viguier, Laurent L. & Babiker, Mustafa H. & Reilly, John M., 2003. "The costs of the Kyoto Protocol in the European Union," Energy Policy, Elsevier, vol. 31(5), pages 459-481, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chang, Kai & Pei, Ping & Zhang, Chao & Wu, Xin, 2017. "Exploring the price dynamics of CO2 emissions allowances in China's emissions trading scheme pilots," Energy Economics, Elsevier, vol. 67(C), pages 213-223.
    2. Fujimori, Shinichiro & Masui, Toshihiko & Matsuoka, Yuzuru, 2015. "Gains from emission trading under multiple stabilization targets and technological constraints," Energy Economics, Elsevier, vol. 48(C), pages 306-315.
    3. Matthias Weitzel, 2017. "The role of uncertainty in future costs of key CO2 abatement technologies: a sensitivity analysis with a global computable general equilibrium model," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 22(1), pages 153-173, January.
    4. Subimal Chatterjee & Satadruta Mookherjee, 2018. "Valuing bets and hedges," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 13(6), pages 509-513, November.
    5. Martin Henseler & Ruth Delzeit & Marcel Adenäuer & Sarah Baum & Peter Kreins, 2021. "Correction to: Nitrogen Tax and Set‑Aside as Greenhouse Gas Abatement Policies Under Global Change Scenarios: A Case Study for Germany," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(3), pages 625-625, July.
    6. Li, Xin, 2014. "The Demographic Structure and Export Strategy in Emerging Economies," Conference papers 332502, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    7. Dai, Hancheng & Xie, Yang & Liu, Jingyu & Masui, Toshihiko, 2018. "Aligning renewable energy targets with carbon emissions trading to achieve China's INDCs: A general equilibrium assessment," Renewable and Sustainable Energy Reviews, Elsevier, vol. 82(P3), pages 4121-4131.
    8. Shiro Takeda & Toshi H. Arimura & Makoto Sugino, 2019. "Labor Market Distortions and Welfare-Decreasing International Emissions Trading," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 271-293, September.
    9. Nemet, Gregory F., 2010. "Robust incentives and the design of a climate change governance regime," Energy Policy, Elsevier, vol. 38(11), pages 7216-7225, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. de Cara, Stephane & Houze, Martin & Jayet, Pierre-Alain, 2004. "Greenhouse gas emissions from agriculture in the EU: A spatial assessment of sources and abatement costs," 2004 Conference (48th), February 11-13, 2004, Melbourne, Australia 58401, Australian Agricultural and Resource Economics Society.
    2. Kiuila, O. & Rutherford, T.F., 2013. "The cost of reducing CO2 emissions: Integrating abatement technologies into economic modeling," Ecological Economics, Elsevier, vol. 87(C), pages 62-71.
    3. Quinn, Barry & Gallagher, Ronan & Kuosmanen, Timo, 2023. "Lurking in the shadows: The impact of CO2 emissions target setting on carbon pricing in the Kyoto agreement period," Energy Economics, Elsevier, vol. 118(C).
    4. Reilly, J. & Paltsev, S. & Felzer, B. & Wang, X. & Kicklighter, D. & Melillo, J. & Prinn, R. & Sarofim, M. & Sokolov, A. & Wang, C., 2007. "Global economic effects of changes in crops, pasture, and forests due to changing climate, carbon dioxide, and ozone," Energy Policy, Elsevier, vol. 35(11), pages 5370-5383, November.
    5. Javier Aliaga Lordemann & Alejandro Herrerra Jiménez, 2014. "Energy-Mix Scenarios for Bolivia," Documentos de trabajo 8/2014, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    6. Boeters, Stefan & Koornneef, Joris, 2011. "Supply of renewable energy sources and the cost of EU climate policy," Energy Economics, Elsevier, vol. 33(5), pages 1024-1034, September.
    7. Jiang, Hong-Dian & Pradhan, Basanta K. & Dong, Kangyin & Yu, Yan-Yan & Liang, Qiao-Mei, 2024. "An economy-wide impacts of multiple mitigation pathways toward carbon neutrality in China: A CGE-based analysis," Energy Economics, Elsevier, vol. 129(C).
    8. Li, Wei & Jia, Zhijie, 2016. "The impact of emission trading scheme and the ratio of free quota: A dynamic recursive CGE model in China," Applied Energy, Elsevier, vol. 174(C), pages 1-14.
    9. McFarland, James R. & Paltsev, Sergey & Jacoby, Henry D., 2009. "Analysis of the Coal Sector under Carbon Constraints," Journal of Policy Modeling, Elsevier, vol. 31(3), pages 404-424, May.
    10. Hwang Won-Sik & Oh Inha & Lee Jeong-Dong, 2014. "The Impact of Korea’s Green Growth Policies on the National Economy and Environment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(4), pages 1585-1614, October.
    11. Khellaf, Ayache & Nihou, Abdelaziz & Baray, Abdoul G. & van der Mensbrugghe, Dominique & Liverani, Andrea & Tyner, Wallace E., 2014. "Socioeconomic impacts of green energy growth policy in Morocco - a general equilibrium analysis," Conference papers 332493, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    12. J. West & Arlene Fiore & Larry Horowitz, 2012. "Scenarios of methane emission reductions to 2030: abatement costs and co-benefits to ozone air quality and human mortality," Climatic Change, Springer, vol. 114(3), pages 441-461, October.
    13. Sue Wing, Ian & Eckaus, Richard S., 2007. "The implications of the historical decline in US energy intensity for long-run CO2 emission projections," Energy Policy, Elsevier, vol. 35(11), pages 5267-5286, November.
    14. Nong, Duy & Meng, Sam & Siriwardana, Mahinda, 2017. "An assessment of a proposed ETS in Australia by using the MONASH-Green model," Energy Policy, Elsevier, vol. 108(C), pages 281-291.
    15. Newell, Richard G. & Jaffe, Adam B. & Stavins, Robert N., 2006. "The effects of economic and policy incentives on carbon mitigation technologies," Energy Economics, Elsevier, vol. 28(5-6), pages 563-578, November.
    16. Min-Chun Yu & Min-Hong Su, 2017. "Using Fuzzy DEA for Green Suppliers Selection Considering Carbon Footprints," Sustainability, MDPI, vol. 9(4), pages 1-11, March.
    17. da Silveira, Vagner Reis & de Oliveira, José Francisco & da Silva, Mauricio Soares & Silva, Corbiniano & Alves, Alisson Rodrigues & de Souza Pontes, Anselmo & Pimentel, Luiz Cláudio Gomes & Filho, Ott, 2021. "Analysis of urban - industrial expansion and increasing level of ozone concentration as subsiding an environmental management plan for the east of Rio de Janeiro metropolitan area – Brazil," Land Use Policy, Elsevier, vol. 101(C).
    18. Huang, Xiaodan & Chang, Shiyan & Zheng, Dingqian & Zhang, Xiliang, 2020. "The role of BECCS in deep decarbonization of China's economy: A computable general equilibrium analysis," Energy Economics, Elsevier, vol. 92(C).
    19. repec:rri:wpaper:200705 is not listed on IDEAS
    20. de Cara, Stephane & Rozakis, Stelios, 2004. "Carbon sequestration through the planting of multi-annual energy crops: A dynamic and spatial assessment," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 5(01), pages 1-17, January.
    21. Ying Fan & Jian-Ling Jiao & Qiao-Mei Liang & Zhi-Yong Han & Yi-Ming Wei, 2007. "The impact of rising international crude oil price on China's economy: an empirical analysis with CGE model," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 27(4), pages 404-424.

    More about this item

    Keywords

    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:38:y:2010:i:4:p:1787-1796. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.