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Sectoral and Regional Expansion of Emissions Trading

Author

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  • Christoph Böhringer

    (Department of Economics, University of Oldenburg)

  • Dijkstra Bouwe

    (University of Nottingham)

  • Knut Einar Rosendahl

    (Research Department, Statistics Norway)

Abstract

We consider an international emissions trading scheme with partial sectoral and regional coverage. Sectoral and regional expansion of the trading scheme is beneficial in aggregate, but not necessarily for individual countries. We simulate international CO2 emission quota markets using marginal abatement cost functions and the Copenhagen 2020 climate policy targets for selected countries that strategically allocate emissions in a bid to manipulate the quota price. Quota exporters and importers generally have conflicting interests about admitting more countries to the trading coalition, and our results indicate that some countries may lose substantially when the coalition expands in terms of new countries. For a given coalition, expanding sectoral coverage makes most countries better off, but some countries (notably the USA and Russia) may lose out due to loss of strategic advantages. In general, exporters tend to have stronger strategic power than importers.

Suggested Citation

  • Christoph Böhringer & Dijkstra Bouwe & Knut Einar Rosendahl, 2011. "Sectoral and Regional Expansion of Emissions Trading," Working Papers V-337-11, University of Oldenburg, Department of Economics, revised Jun 2011.
    • Handle: RePEc:old:dpaper:337-11
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    More about this item

    Keywords

    Emissions Trading; Allocation of Quotas; Strategic Behavior;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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