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Market Power in a System of Tradeable CO2 Quotas

Hege Westskog

Year: 1996
Volume: Volume17
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol17-No3-6
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Abstract:
This paper examines the connection between market power and the size of efficiency loss in a market for tradeable CO2 permits. Countries, not firms, are the players in the market. A situation is analyzed where some of the, participants have market power, i.e., they can influence the price of a CO2 quota. Each country with market power decides how many quotas to buy or sell, given the other market power countries' sales or purchases of quotas, and the behavior of countries without market power. The latter countries act as price takers. The market equilibrium is compared to a cost effective market situation in order to quantify the efficiency loss resulting from market power.



Should Developing Countries Take on Binding Commitments in a Climate Agreement? An Assessment of Gains and Uncertainty

Steffen Kallbekken and Hege Westskog

Year: 2005
Volume: Volume 26
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No3-2
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Abstract:
In this paper we explore whether efficiency gains obtained by developing countries participation in emission trading could offset the economic risks that would be incurred by taking on binding commitments when future emissions are uncertain. Such commitments would allow developing countries to participate in emissions trading, which has significantly lower transaction costs than the present Clean Development Mechanism (CDM). However, because future emissions cannot be known, commitments can become more costly for the developing countries than expected. Using a dynamic computable general equilibrium model, we analyse whether the efficiency gains obtained by participating in emissions trading can offset this risk. We find that the efficiency gains that can be obtained by developing countries might not be very large compared to the risks they incur. Developing countries might therefore have good reasons not to embrace binding commitments in order to participate in �cap and trade� emissions trading.





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