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Banning banking in EU emissions trading?

Author

Listed:
  • Schleich, Joachim

    (Fraunhofer Institute for Systems and Innovations Research, Karlsruhe)

  • Ehrhart, Karl-Martin

    (Universitaet Karlsruhe)

  • Hoppe, Christian

    (Universitaet Karlsruhe)

  • Seifert, Stefan

    (Universitaet Karlsruhe, IWM)

Abstract

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.

Suggested Citation

  • Schleich, Joachim & Ehrhart, Karl-Martin & Hoppe, Christian & Seifert, Stefan, 2004. "Banning banking in EU emissions trading?," Sonderforschungsbereich 504 Publications 04-60, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • 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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