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The Role of Transaction Costs and Risk Premia in the Determination of Climate Change Policy Responses

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  • Stronzik, Marcus
  • Hunt, Alistair
  • Eckermann, Frauke
  • Taylor, Tim

Abstract

Transaction costs and risk have generally not been taken into account in assessing the Kyoto mechanisms JI, CDM and emissions trading. However, they can have a significant influence. With regard to the project-based mechanisms, the factor that most determines the influence of transaction costs on the implementation of a project is the size of the particular project. For some projects transaction costs amount up to over 1000 ?/ton C reduced, which proves the necessity of streamlining procedures, as recognised in the Marrakesh Accords. With regard to international emissions trading it will be of high importance to build on experience with past national emissions trading schemes in order to keep transaction costs low. However, international trading schemes of the type envisaged under the Kyoto Protocol are likely to have significant issues that have not been addressed in previous national experience. In addition to transaction costs, we determine country risk premia to account for the fact that projects in different states may induce different levels of risk of default or project failure.

Suggested Citation

  • Stronzik, Marcus & Hunt, Alistair & Eckermann, Frauke & Taylor, Tim, 2003. "The Role of Transaction Costs and Risk Premia in the Determination of Climate Change Policy Responses," ZEW Discussion Papers 03-59, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:1381
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    References listed on IDEAS

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    1. Stavins, Robert, 2004. "Environmental Economics," Discussion Papers dp-04-54, Resources For the Future.
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    5. Böhringer, Christoph & Löschel, Andreas, 2001. "Market power in international emissions trading : the impact of U.S. withdrawal from the Kyoto Protocol," ZEW Discussion Papers 01-58, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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    Citations

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    Cited by:

    1. Ignacio Pérez Domínguez & Wolfgang Britz & Karin Holm-Müller, 2009. "Trading schemes for greenhouse gas emissions from European agriculture: A comparative analysis based on different implementation options," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 90(3), pages 287-308.
    2. Betz, Regina, 2006. "Emissions trading to combat climate change: The impact of scheme design on transaction costs," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 174096, Australian Agricultural and Resource Economics Society.
    3. repec:ags:aare05:139304 is not listed on IDEAS
    4. Alfred Endres & Cornelia Ohl, 2005. "Kyoto, Europe?—An Economic Evaluation of the European Emission Trading Directive," European Journal of Law and Economics, Springer, vol. 19(1), pages 17-39, January.

    More about this item

    Keywords

    transaction costs; risk premia; Kyoto Protocol; emissions trading; small scale projects;

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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