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Hot Air as an Implicit Side Payment Arrangement: Could a Hot Air Provision have Saved the Kyoto-Agreement?


  • Urs Steiner Brandt

    () (Department of Environmental and Business Economics, University of Southern Denmark)

  • Gert Tinggaard Svendsen

    () (Department of Political Science, University of Aarhus)


The purpose of this paper is to analyse whether the presence of Hot Air trading jeopardizes the environmental target of an international environmental agree-ment. We argue that Hot Air can be used as an implicit side-payment mecha-nism to actually bring about higher environmental protection compared to the situation without the trade option. We point to the existence of a fundamental trade-off between costs of compliance and the creation of dynamic incentives to develop cheaper reduction technologies. Implicit side-payments, in terms of Hot Air provision, may be needed in order to establish a compromise between these opposing demands. We identify the shortcomings and benefits of allowing fully flexible permit trading including the allocation rule of grandfathering.

Suggested Citation

  • Urs Steiner Brandt & Gert Tinggaard Svendsen, 2003. "Hot Air as an Implicit Side Payment Arrangement: Could a Hot Air Provision have Saved the Kyoto-Agreement?," Working Papers 42/03, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
  • Handle: RePEc:sdk:wpaper:42

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    References listed on IDEAS

    1. 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.
    2. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, vol. 25(5), pages 527-551, September.
    3. Urs Steiner Brandt & Gert Tinggaard Svendsen, 2001. "Hot air in Kyoto, cold air in The Hague," Working Papers 22/01, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    4. Gusbin, Dominique & Klaassen, Ger & Kouvaritakis, Nikos, 1999. "Costs of a ceiling on Kyoto flexibility," Energy Policy, Elsevier, vol. 27(14), pages 833-844, December.
    5. Scott Barret, 1998. "On the Theory and Diplomacy of Environmental Treaty-Making," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 317-333, April.
    6. Stavins, Robert, 2001. "Lessons from the American Experiment with Market-Based Environmental Policies," Working Paper Series rwp01-032, Harvard University, John F. Kennedy School of Government.
    7. Brandt, Urs Steiner & Svendsen, Gert Tinggaard, 2002. "Hot air in Kyoto, cold air in The Hague--the failure of global climate negotiations," Energy Policy, Elsevier, vol. 30(13), pages 1191-1199, October.
    8. Barrett, Scott, 1997. "The strategy of trade sanctions in international environmental agreements," Resource and Energy Economics, Elsevier, vol. 19(4), pages 345-361, November.
    9. Grubler, Arnulf & Nakicenovic, Nebojsa & Victor, David G., 1999. "Dynamics of energy technologies and global change," Energy Policy, Elsevier, vol. 27(5), pages 247-280, May.
    10. Barrett, Scott, 1998. "Political Economy of the Kyoto Protocol," Oxford Review of Economic Policy, Oxford University Press, vol. 14(4), pages 20-39, Winter.
    11. Chen, Wenying, 2003. "Carbon quota price and CDM potentials after Marrakesh," Energy Policy, Elsevier, vol. 31(8), pages 709-719, June.
    12. Carraro, Carlo & Siniscalco, Domenico, 1992. "The international dimension of environmental policy," European Economic Review, Elsevier, vol. 36(2-3), pages 379-387, April.
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    Cited by:

    1. Brandt, Urs Steiner & Svendsen, Gert Tinggaard, 2006. "Climate change negotiations and first-mover advantages: the case of the wind turbine industry," Energy Policy, Elsevier, vol. 34(10), pages 1175-1184, July.
    2. Brandt, Urs Steiner & Svendsen, Gert Tinggaard, 2004. "Switch Point and First-Mover Advantage: The Case of the Wind Turbine Industry," Working Papers 04-2, University of Aarhus, Aarhus School of Business, Department of Economics.

    More about this item


    Hot Air; Global GHG trade; Kyoto protocol; Grandfathering; Cost issue; EU; US;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H4 - Public Economics - - Publicly Provided Goods


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