IDEAS home Printed from
   My bibliography  Save this article

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


  • T. Ermolieva


  • Y. Ermoliev
  • M. Jonas
  • M. Obersteiner
  • F. Wagner
  • W. Winiwarter


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

Suggested Citation

  • T. Ermolieva & Y. Ermoliev & M. Jonas & M. Obersteiner & F. Wagner & W. Winiwarter, 2014. "Uncertainty, cost-effectiveness and environmental safety of robust carbon trading: integrated approach," Climatic Change, Springer, vol. 124(3), pages 633-646, June.
  • Handle: RePEc:spr:climat:v:124:y:2014:i:3:p:633-646
    DOI: 10.1007/s10584-013-0824-2

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    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.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    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:spr:climat:v:124:y:2014:i:3:p:633-646. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.