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International emissions trading in a non-cooperative equilibrium

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Abstract

Linkage of different countries' domestic permit markets for pollution rights into a single international market alters governments' incentives, and may trigger adjustments of the number of allocated permits. First, this work finds that in a non-cooperative equilibrium, international emissions trading is likely to increase the total emissions. Second, although trading will give a more efficient cross-country allocation of emissions, efficiency may nevertheless fall, because an already inefficiently low abatement level is likely to be further reduced. Third, we find that large countries are likely to experience losses from linking their permit markets to the permit markets of smaller countries.

Suggested Citation

  • Bjart J. Holtsmark & Dag Einar Sommervoll, 2008. "International emissions trading in a non-cooperative equilibrium," Discussion Papers 542, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:542
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp542.pdf
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    Cited by:

    1. Peter Cramton & Steven Stoft, 2010. "International Climate Games: From Caps to Cooperation," Papers of Peter Cramton 10icg, University of Maryland, Department of Economics - Peter Cramton, revised 2010.
    2. Snorre Kverndokk, 2013. "Moral positions on tradable permit markets," Chapters,in: Handbook on Energy and Climate Change, chapter 22, pages 490-499 Edward Elgar Publishing.
    3. Mads Greaker & Cathrine Hagem, 2010. "Strategic investment in climate friendly technologies: the impact of permit trade," Discussion Papers 615, Statistics Norway, Research Department.
    4. Judson Jaffe & Robert N. Stavins, 2008. "Linkage of Tradable Permit Systems in International Climate Policy Architecture," NBER Working Papers 14432, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Emissions trading; efficiency; non-cooperative games;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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