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Uncertainty, cost-effectiveness and environmental safety of robust carbon trading: integrated approach

Listed author(s):
  • T. Ermolieva

    ()

  • Y. Ermoliev
  • M. Jonas
  • M. Obersteiner
  • F. Wagner
  • W. Winiwarter
Registered author(s):

    Carbon markets, like other commodity markets, are volatile. They react to stochastic “disequilibrium” spot prices, which may be affected by inadequate policies, speculations and bubbles. The market-based emission trading, therefore, does not necessarily minimize abatement costs and achieve emission reduction goals. We introduce a basic stochastic model integrating emissions reduction, monitoring and trading costs allowing us to analyze the robustness of emission and uncertainty reduction policies under environmental safety constraints asymmetric information and other multiple anthropogenic and natural uncertainties. Explicit treatment of uncertainties provides incentives for reducing them before trading. We illustrate functioning of the robust market with numerical results involving such countries as the US, Australia, Canada, Japan, EU27, Russia, Ukraine. In particular, we analyze if the knowledge about uncertainties may affect portfolios of technological and trade policies or structure of the market and how uncertainty characteristics may affect market prices and change the market structure. Copyright Springer Science+Business Media Dordrecht 2014

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    File URL: http://hdl.handle.net/10.1007/s10584-013-0824-2
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    Article provided by Springer in its journal Climatic Change.

    Volume (Year): 124 (2014)
    Issue (Month): 3 (June)
    Pages: 633-646

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    Handle: RePEc:spr:climat:v:124:y:2014:i:3:p:633-646
    DOI: 10.1007/s10584-013-0824-2
    Contact details of provider: Web page: http://www.springer.com

    Order Information: Web: http://www.springer.com/economics/journal/10584

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    1. Evstigneev, I.V. & Flam, S.D., 2000. "Sharing Nonconvex Costs," Norway; Department of Economics, University of Bergen 1300, Department of Economics, University of Bergen.
    2. Regina Betz & Misato Sato, 2006. "Emissions trading: lessons learnt from the 1st phase of the EU ETS and prospects for the 2nd phase," Climate Policy, Taylor & Francis Journals, vol. 6(4), pages 351-359, July.
    3. Odd Godal & Yuri Ermoliev & Ger Klaassen & Michael Obersteiner, 2003. "Carbon Trading with Imperfectly Observable Emissions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 25(2), pages 151-169, June.
    4. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    5. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
    6. Y. Ermoliev & M. Michalevich & A. Nentjes, 2000. "Markets for Tradeable Emission and Ambient Permits: A Dynamic Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 15(1), pages 39-56, January.
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