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Banning banking in EU emissions trading?

  • Schleich, Joachim

    (Fraunhofer Institute for Systems and Innovations Research, Karlsruhe)

  • Ehrhart, Karl-Martin

    ()

    (Universitaet Karlsruhe)

  • Hoppe, Christian

    ()

    (Universitaet Karlsruhe)

  • Seifert, Stefan

    (Universitaet Karlsruhe, IWM)

Admitting banking in emissions trading systems reduces overall compliance costs by allowing for inter-temporal flexibility: cost savings can be traded over time. However, unless individual EU Member States (MS) decide differently, the transfer of unused allowances from the period of 2005-2007 into the first commitment period under the Kyoto Protocol, i.e. 2008�2012, will be prohib-ited. In this paper, we first explore the implications of such a ban on banking when initial emission targets are lenient. This analysis is based on a simulation which was recently carried out in Germany with companies and with a student control group. The findings suggest that an EU-wide ban on banking would lead to efficiency losses in addition to those losses which arise from the lack of inter-temporal flexibility. Second, we use simple game-theoretic considerations to argue that, under reasonable assumptions, such an EU-wide ban on banking will be the equilibrium outcome. Thus, to avoid a possible prisoners� dilemma, MS should co-ordinate their banking decisions.

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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 04-60.

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Length: 33 pages
Date of creation: 03 Dec 2004
Date of revision:
Handle: RePEc:xrs:sfbmaa:04-60
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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  1. Catherine Boemare & Philippe Quirion, 2002. "Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences," Post-Print halshs-00007264, HAL.
  2. Ellerman, A.D. & Juan-Pablo Montero, 2002. "The Temporal Efficiency of SO2 Emissions Trading," Cambridge Working Papers in Economics 0231, Faculty of Economics, University of Cambridge.
  3. Plott, Charles R., . "Industrial Organization Theory and Experimental Economics," Working Papers 405, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Stuart Mestelman & Andrew Muller, 1997. "What Have We Learned From Emissions Trading Experiments?," McMaster Experimental Economics Laboratory Publications 1997-03, McMaster University.
  5. Editors, 2003. "Editor's Introduction," American Journal of Economics and Sociology, Wiley Blackwell, vol. 62(2), pages 315-318, 04.
  6. Newell, Richard G & Stavins, Robert N, 2003. "Cost Heterogeneity and the Potential Savings from Market-Based Policies," Journal of Regulatory Economics, Springer, vol. 23(1), pages 43-59, January.
  7. Editors, 2003. "Editor's Introduction," American Journal of Economics and Sociology, Wiley Blackwell, vol. 62(4), pages 645-648, October.
  8. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  9. Kling, Catherine & Rubin, Jonathan, 1997. "Bankable permits for the control of environmental pollution," Journal of Public Economics, Elsevier, vol. 64(1), pages 101-115, April.
  10. repec:cup:cbooks:9780521660839 is not listed on IDEAS
  11. Loewenstein, George, 1999. "Experimental Economics from the Vantage-Point of Behavioural Economics," Economic Journal, Royal Economic Society, vol. 109(453), pages F23-34, February.
  12. Akhurst, Mark & Morgheim, Jeff & Lewis, Rachel, 2003. "Greenhouse gas emissions trading in BP," Energy Policy, Elsevier, vol. 31(7), pages 657-663, June.
  13. R. Andrew Muller, 1999. "Experimental Methods for Research into Trading of Greenhouse Gas Emissions," Department of Economics Working Papers 1999-14, McMaster University.
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