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CO2 Emissions Limits: Economic Adjustments and the Distribution of Burdens

Henry D. Jacoby, Richard S. Eckaus, A. Denny Ellerman, Ronald G. Prinn, David M. Reiner and Zili Yang

Year: 1997
Volume: Volume18
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No3-2
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Abstract:
Policies under consideration within the Climate Convention would impose CO2 controls on only a subset of nations. A model of economic growth and emissions, coupled to an analysis of the climate system, is used to explore the consequences of a sample proposal of this type. The results show how economic burdens are likely to be distributed among nations, how carbon "leakage" may counteract the reductions attained, and how policy costs may be influenced by emissions trading. We explore the sensitivity of results to uncertainty in key underlying assumptions, including the influence on economic impacts and on the policy contribution to long-term climate goals.



The Next Restructuring: Environmental Regulation

A. Denny Ellerman

Year: 1999
Volume: Volume20
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No1-8
View Abstract

Abstract:
From oil, to natural gas, and now electricity, the regulation of energy markets has been successively restructured to allow greater scope to market forces. The likely next domain for restructuring, environmental regulation, may seem far fetched now, but it is no more so than the restructuring of electric utility regulation would have seemed to be twenty years ago. The "grand experiment" with emissions trading under the U.S. acid rain program has set a propitious example by showing that markets in environmental goods can be constructed and that the explicit recognition of property rights in the use of the environment is compatible with effective and non-intrusive environmental regulation.



Supplementarity: An Invitation to Monopsony?

A. Denny Ellerman and Ian Sue Wing

Year: 2000
Volume: Volume21
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No4-2
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Abstract:
Article 17 of the Kyoto Protocol allows Annex B parties to meet their greenhouse gas emissions commitments by emissions trading so long as such trading is "supplemental" to domestic abatement actions. Whether and how "supplemental" should be defined is one of the most contentious issues in the post-Kyoto climate negotiations. We demonstrate that implementing supplementarity by imposing concrete ceilings on permit imports in a market for tradable emissions rights gives rise to monopsonistic effects similar to those that characterize a buyers' cartel. We assess the EU proposal on supplementarity in this context. Our results show that, under the most favorable assumptions, the proposal avoids the redistributive effects of an import limit, albeit at added cost. Under less favorable assumptions, namely, that the required demonstrations of verifiable abatement cannot be made, the EU proposal severely limits emissions trading and the associated reductions in the costs of achieving the Kyoto commitments.



The Efficiency and Robustness of Allowance Banking in the U.S. Acid Rain Program

A. Denny Ellerman and Juan-Pablo Montero

Year: 2007
Volume: Volume 28
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No4-3
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Abstract:
This paper provides an empirical evaluation of the efficiency of allowance banking in the nationwide market for sulfur dioxide (SO2) emission allowances that was created by the U.S. Acid Rain Program. We develop a model of efficient banking, select appropriate parameter values, and evaluate the efficiency of observed temporal pattern of abatement based on aggregate data from the first eight years of the Acid Rain Program. Contrary to the general opinion that banking in this program has been excessive, we find that it has been reasonably efficient. We also identify the erroneous assumptions underlying the earlier view and the conditions required for efficient banking to exist independently of changes in the counterfactual, an attribute we call robustness. These results show that firms use banking provisions in a rational and predictable way and that, at least in the US Acid Rain Program, there is no support for the often expressed concern that banked permits will be used all at once to create emissions spikes.



Cross Border Trading and Borrowing in the EU ETS

A. Denny Ellerman and Raphael Trotignon

Year: 2009
Volume: Volume 30
Number: Special Issue #2
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI2-4
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Abstract:
Cross Border Trading and Borrowing in the EU ETS A. Denny Ellerman* and Raphael Trotignon** This paper exploits a little used data resource within the central registry of the European Union�s Emissions Trading System (EU ETS) to analyze cross border trading and inter-year borrowing during the first trading period (2005- 2007). Cross-border flows were small in the aggregate but remarkably frequent in matching allowance deficits and surpluses at the installation level throughout the EU. These data also indicate that a novel feature of the EU ETS�the ability to borrow allowances from the forward allocation to satisfy current compliance requirements�was also used. These data provide evidence that the precondition of efficient abatement in a cap-and-trade system�widespread use of trading opportunities�was present in the first period of the EU ETS.



New Entrant and Closure Provisions: How do they Distort?

A. Denny Ellerman

Year: 2008
Volume: Volume 29
Number: Special Issue
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-NoSI-5
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Abstract:
Provisions to endow new entrants with free allowances and to require closed facilities to forfeit allowance endowments are ubiquitous in the EU Emissions Trading Scheme, but a new design feature in cap-and-trade systems. This essay seeks to explore, within a comparative statics framework, the effect of these provisions on agent behavior in output and emissions markets assuming profit maximization. The main conclusion is that the principal effect is on capacity. The effect of the resulting over-capacity on output markets is to reduce output price and to increase output. The effect on emissions markets is more ambiguous in that it depends on the emission characteristics of the new capacity, existing capacity, and the capacity not retired, and the distribution of the excess capacity among these categories.



The Implicit Carbon Price of Renewable Energy Incentives in Germany

Claudio Marcantonini, A. Denny Ellerman

Year: 2015
Volume: Volume 36
Number: Number 4
DOI: 10.5547/01956574.36.4.cmar
View Abstract

Abstract:
This research analyzes the German experience in promoting Renewable Energy (RE) as an instrument to reduce GHG emissions. It identifies the cost of reducing CO2 emissions in the power sector through the promotion of wind and solar energy for the years 2006-2010. A RE carbon surcharge and an implicit carbon price due to the RE incentives are calculated. The RE carbon surcharge is the ratio of the net cost of the RE over the CO2 emission reductions resulting from actual RE injections into the electric power system. The implicit carbon price is the sum of the RE carbon surcharge and the EUA price. Results show that for the period analyzed both the RE carbon surcharge and the implicit carbon price of wind are on the order of tens of euro per tonne of CO2, while for solar are on the order of hundreds of euro per tonne of CO2.





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