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Avoiding a Lemons Market by Including Uncertainty in the Kyoto Protocol: Same Mechanism - Improved Rules

Author

Listed:
  • M. Obersteiner
  • Y.M. Ermoliev
  • M. Gluck
  • M. Jonas
  • S. Nilsson
  • A. Shvidenko

Abstract

In its current form the Kyoto Protocol does not consider the issue of uncertainty in the process of mutual recognition of emission reductions between Parties. We argue that lack of appropriate institutions that police emission reporting will lead to a disintegration of the carbon market due to competition induced quality deterioration of reporting. The introduction of a verification clause in the Protocols rules would be a first step towards avoiding disintegrative tendencies and carry the potential of improving the Protocols effectiveness. Building on a physical approach of verification times we derive an economic model of optimal emission and uncertainty reduction to reach a verifiable emission target. In such a set-up, depending on its competitive advantage, a Party can choose to reduce emissions and/or the associated uncertainties or trade verified certificates. Thus, the proposed model is intended to help prioritize efforts to reach verifiable emission reductions with least costs within a Kyoto type framework.

Suggested Citation

  • M. Obersteiner & Y.M. Ermoliev & M. Gluck & M. Jonas & S. Nilsson & A. Shvidenko, 2000. "Avoiding a Lemons Market by Including Uncertainty in the Kyoto Protocol: Same Mechanism - Improved Rules," Working Papers ir00043, International Institute for Applied Systems Analysis.
    • Handle: RePEc:wop:iasawp:ir00043
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    References listed on IDEAS

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    1. Fehr, Ernst & Gachter, Simon, 1998. "Reciprocity and economics: The economic implications of Homo Reciprocans1," European Economic Review, Elsevier, vol. 42(3-5), pages 845-859, May.
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    Cited by:

    1. T. Ermolieva & Y. Ermoliev & M. Jonas & M. Obersteiner & F. Wagner & W. Winiwarter, 2014. "Uncertainty, cost-effectiveness and environmental safety of robust carbon trading: integrated approach," Climatic Change, Springer, vol. 124(3), pages 633-646, June.

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