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Estimating the size of the potential market for all three flexibility mechanisms under the Kyoto Protocol

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  • Zhang, ZhongXiang

Abstract

The Kyoto Protocol is the first international environmental agreement that sets legally binding greenhouse gas emissions targets and timetables for Annex I countries. It incorporates emissions trading and two project-based flexibility mechanisms, namely joint implementation and the clean development mechanism to help Annex I countries to meet their Kyoto targets at a lower overall cost. This paper aims to estimate the size of the potential market for all three flexibility mechanisms under the Kyoto Protocol over the first commitment period 2008-2012, both on the demand side and on the supply side. Taking the year 2010 as representative of the first commitment period and based on the national communications from 35 Annex I countries, the paper first estimates the potential demand in the greenhouse gas offset market. We show that for most of the OECD countries excluding the EU, their Kyoto targets are stringent than they appear at first glance. Then, the paper addresses supplementarity constraints and provides a quantitative assessment of the implications of the EU proposal for concrete ceilings on the use of flexibility mechanisms for the division of abatement actions at home and abroad. Our results suggest that although the aggregate allowed acquisitions for the Annex I countries as a whole in 2010 from all three flexibility mechanisms under the two alternatives are well below 50% of the difference between the projected baseline emissions and the target in 2010, the proposed restrictions to each Annex I country vary, in some case even substantially. Finally, using the 12-region’s marginal abatement cost-based model, the paper estimates the contributions of three flexibility mechanisms to meet the total emissions reductions required of Annex I countries under the four trading scenarios, respectively. Our results clearly demonstrate that the fewer the restrictions on trading the gains from trading are greater. The gains are unevenly distributed, however, with Annex I countries that have the highest autarkic marginal abatement costs tending to benefit the most. With respect to non-Annex I countries, their net gains are highest when trading in hot air is not allowed. Because of a great deal of low-cost abatement opportunities available in the energy sectors of China and India and their sheer sizes of population, we found that the two countries account for about three-quarters of the total non-Annex I countries’ exported permits to the Annex I regions.

Suggested Citation

  • Zhang, ZhongXiang, 1999. "Estimating the size of the potential market for all three flexibility mechanisms under the Kyoto Protocol," MPRA Paper 13088, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13088
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    File URL: https://mpra.ub.uni-muenchen.de/13088/1/MPRA_paper_13088.pdf
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    References listed on IDEAS

    as
    1. Christopher N. MacCracken & James A. Edmonds & Son H. Kim & Ronald D. Sands, 1999. "The Economics of the Kyoto Protocol," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 25-71.
    2. Warwick J. McKibbin & Martin T. Ross & Robert Shackleton & Peter J. Wilcoxen, 1999. "Emissions Trading, Capital Flows and the Kyoto Protocol," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 287-333.
    3. Böhringer, Christoph, 1999. "Cooling down hot air: a global CGE analysis of post-Kyoto carbon abatement strategies," ZEW Discussion Papers 99-43, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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    Citations

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    Cited by:

    1. Zhang, ZhongXiang, 2001. "An economic assessment of the Kyoto Protocol using a global model based on the marginal abatement costs of 12 regions," MPRA Paper 13148, University Library of Munich, Germany.
    2. Stevens, Brandt & Rose, Adam, 2002. "A Dynamic Analysis of the Marketable Permits Approach to Global Warming Policy: A Comparison of Spatial and Temporal Flexibility," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 45-69, July.
    3. ZhongXiang Zhang, 2000. "Estimating the size of the potential market for the Kyoto flexibility mechanisms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(3), pages 491-521, September.
    4. Zhang, ZhongXiang, 2001. "An assessment of the EU proposal for ceilings on the use of Kyoto flexibility mechanisms," Ecological Economics, Elsevier, vol. 37(1), pages 53-69, April.
    5. Zhang, ZhongXiang, 2004. "The World Bank's prototype carbon fund and China," MPRA Paper 13222, University Library of Munich, Germany, revised Dec 2005.
    6. Zhang, ZhongXiang, 2000. "The size of the carbon market study: discussion," MPRA Paper 14507, University Library of Munich, Germany.
    7. Haites, Erik & Missfeldt, Fanny, 2004. "Liquidity implications of a commitment period reserve at national and global levels," Energy Economics, Elsevier, vol. 26(5), pages 845-868, September.
    8. Zhang, ZhongXiang, 2006. "Toward an effective implementation of clean development mechanism projects in China," Energy Policy, Elsevier, vol. 34(18), pages 3691-3701, December.
    9. Zhang, ZhongXiang, 2004. "Meeting the Kyoto targets: the importance of developing country participation," Journal of Policy Modeling, Elsevier, vol. 26(1), pages 3-19, January.
    10. Zhang, ZhongXiang, 2010. "China in the transition to a low-carbon economy," Energy Policy, Elsevier, vol. 38(11), pages 6638-6653, November.
    11. Jacob Werksman & Kevin Baumert & Navroz Dubash, 2003. "Will International Investment Rules Obstruct Climate Protection Policies? An Examination of the Clean Development Mechanism," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 3(1), pages 59-86, March.
    12. Zhang, ZhongXiang, 2008. "Asian energy and environmental policy: Promoting growth while preserving the environment," Energy Policy, Elsevier, vol. 36(10), pages 3905-3924, October.
    13. Zhang, ZhongXiang, 2002. "The economic effects of an alternative EU emissions policy," Journal of Policy Modeling, Elsevier, vol. 24(7-8), pages 667-677, November.
    14. Halsnaes, Kirsten, 2002. "Market potential for Kyoto mechanisms--estimation of global market potential for co-operative greenhouse gas emission reduction policies," Energy Policy, Elsevier, vol. 30(1), pages 13-32, January.

    More about this item

    Keywords

    Emissions trading; clean development mechanism; joint implementation; climate change; marginal abatement costs; Kyoto Protocol; United States; Japan; European Union; China; India;

    JEL classification:

    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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