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Abatement costs vs. compliance costs in multi-period emissions trading — the firms’ perspective

In: Emissions Trading and Business

Author

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  • Sven Bode

    (Hamburg Institute of International Economics)

Abstract

Greenhouse gas emissions trading has become increasingly important in the context of climate change. Recently, a discussion on trading at the entity, i.e. company, level has started. Emitters obliged to participate have argued for an initial allocation of the emission rights free of charge. In this paper, the implication of such an allocation based on historical emissions and on benchmarks in multi-period emissions trading is analysed. Different allocation rules for successive periods are applied, namely allocations with reference figures that are either constant or that change over time. The analysis is carried out using a two-player, two-period model. I find that, depending on their marginal abatement cost, participants have different preferences with regard to the allocation method over time, as individual compliance costs can change as well. Total costs remain, however, unaffected by the individual allocations, as emissions are reduced where abatement is cheapest.

Suggested Citation

  • Sven Bode, 2006. "Abatement costs vs. compliance costs in multi-period emissions trading — the firms’ perspective," Springer Books, in: Ralf Antes & Bernd Hansjürgens & Peter Letmathe (ed.), Emissions Trading and Business, pages 11-25, Springer.
    • Handle: RePEc:spr:sprchp:978-3-7908-1748-5_2
    DOI: 10.1007/3-7908-1748-1_2
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