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Emission Trading with Shares and Coupons: A Laboratory Experiment

R. Andrew Muller and Stuart Mestelman

Year: 1994
Volume: Volume15
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No2-10
View Abstract

Abstract:
Increasing attention is being paid to emission trading programs for the control of air and water pollution. The United States EPA has implemented a tradable emission allowance program for sulphur oxides. The EPA auction has been investigated in the laboratory by Cronshaw and Brown Kruse and by Franciosi, Isaac, Pingry and Reynolds. A somewhat different proposal has been made for controlling nitrous oxides in southern Ontario. Trade would occur in coupons (emission permits) and shares (entitlements to coupons). This paper reports a laboratory investigation of the Canadian proposal in which the experimental design developed by Cronshaw and Brown Kruse was modified to reflect the proposed Canadian institution. The results indicate dispersed but relatively stable prices, higher efficiency than obtained in related experiments modelling the EPA plan, and little arbitrage between share and coupon prices. The results could be due to differences in the market institutions or the training of subjects.



The Economics of the Kyoto Protocol

Christopher N. MacCracken, James A. Edmonds, Son H. Kim and Ronald D. Sands

Year: 1999
Volume: Volume 20
Number: Special Issue - The Cost of the Kyoto Protocol: A Multi-Model Evaluation
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-NoSI-3
View Abstract

Abstract:
In this paper we use the Second Generation Model to develop an assessment of the energy and economic implications of achieving the goals of the Kyoto Protocol. We find that many of the details of the Protocol that remain to be worked out introduce critical uncertainties affecting the cost of compliance. Our analysis shows that the cost of implementing the Protocol in the United States can vary by more than an order of magnitude. The marginal cost in 2010 could be as low as $26 per tonne of carbon if a global system of emissions mitigation could be quickly and effectively implemented. But it could also exceed $250 per tonne of carbon if the United States must meet its emissions limitations entirely through domestic actions, and if mitigation obligations are not adequately anticipated by decision-makers.



Requiem for Kyoto: An Economic Analysis of the Kyoto Protocol

William D. Nordhaus and Joseph G. Boyer

Year: 1999
Volume: Volume 20
Number: Special Issue - The Cost of the Kyoto Protocol: A Multi-Model Evaluation
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-NoSI-5
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Abstract:
This paper uses the newly developed RICE-98 model to analyze the economics of the Kyoto Protocol. It analyzes versions of the Kyoto Protocol that have different approaches to trading emissions rights and compares these with efficient approaches. The major conclusions are: (a) the net global cost of the Kyoto Protocol is $716 billion in present value, (b) the United States bears almost two thirds of the global cost; and (c) the benefit-cost ratio of the Kyoto Protocol is 1/7. Additionally, the emissions strategy is highly cost-ineffective, with the global temperature reduction achieved at a cost almost 8 times the cost of a strategy which is cost-effective in terms of "where" and "when" efficiency. These conclusions assume that trading in carbon permits is allowed among the Annex I countries.



Analysis of Carbon Emission Stabilization Targets and Adaptation by Integrated Assessment Model

Atsushi Kurosawa, Hiroshi Yagita, Weisheng Zhou, Koji Tokimatsu and Yukio Yanagisawa

Year: 1999
Volume: Volume 20
Number: Special Issue - The Cost of the Kyoto Protocol: A Multi-Model Evaluation
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-NoSI-7
View Abstract

Abstract:
This paper proposes a new framework for integrated assessment model's of global environmental issues, including energy, climate, land use, macroeconomics, and environmental impacts. We conducted simulations on carbon emission stabilization in regions specified at the Third Conference of the Parties to the United Nations Framework Conventions on Climate Change (UNFCCC/COP3). Adaptation strategies including technology choice, conservation and carbon emission certificate trade are evaluated. We find that carbon certificate trade is potentially effective in averaging relative impact in macroeconomic activity.



Clubs, Ceilings and CDM: Macroeconomics of Compliance with the Kyoto Protocol

Johannes Bollen, Arjen Gielen, and Hans Timmer

Year: 1999
Volume: Volume 20
Number: Special Issue - The Cost of the Kyoto Protocol: A Multi-Model Evaluation
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-NoSI-8
View Abstract

Abstract:
The Kyoto Protocol suggests that imposing restrictions on emission trade among Annex I countries may force domestic action in each country. The Protocol also mentions the Clean Development Mechanism (CDM) as On instrument to extend trade to countries outside Annex I. We analyze both restrictions on and extensions of permit trade among Annex I countries. We use the applied general equilibrium model WorldScan in this analysis. We show that, compared to unrestricted trade, the USA tends to gain from restrictions on emission trade while other OECD countries are likely to be harmed. We further show that restrictions probably do not prevent so-called hot air in the former Soviet Union from being used. On the contrary, restrictions tend to increase global emissions. Finally, we conclude that CDM can be an efficient option to reduce abatement costs, but certain conditions should be fulfilled to avoid severe carbon leakage.



Effects of Restrictions on International Permit Trading: The MS-MRT Model

Paul M. Bernstein, W. David Montgomery, Thomas F. Rutherford and Gui-Fang Yang

Year: 1999
Volume: Volume 20
Number: Special Issue - The Cost of the Kyoto Protocol: A Multi-Model Evaluation
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-NoSI-10
View Abstract

Abstract:
This paper assesses the economic impacts of carbon abatement programs proposed under the Kyoto protocol: the distribution of economic burden across countries and regions, the implications for international competitiveness, and the consequences of international permit trading. Our analysis is based on a dynamic global trade model which accounts for systematic differences in the energy efficiency of production in industrial and developing countries. Emission limits adversely affect the welfare of industrial and some developing countries, including all of the oil-exporting countries. Imports from Annex-B countries become more costly while demand for most developing country exports is reduced. Oil prices simultaneously fall, so the net impact on oil-importing developing countries is ambiguous. Energy-intensive industries have a strong economic incentive to relocate production to low-energy cost developing countries. Global trading in emission rights provides the lowest cost path to Kyoto, but it is unclear whether there are incentives for all non-Annex B countries to participate.



The Kyoto Protocol: An Economic Analysis Using GTEM

Vivek Tulpule, Stephen Brown, Jaekyu Lim, Cain Polidano, Horn Pant and Brian S. Fisher

Year: 1999
Volume: Volume 20
Number: Special Issue - The Cost of the Kyoto Protocol: A Multi-Model Evaluation
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-NoSI-11
View Abstract

Abstract:
In this paper ABARE's Global Trade and Environment Model (GTEM) is used to analyse the potential of international emissions trading as a mechanism for helping to achieve the abatement commitments agreed to in the Kyoto Protocol. The prospect of two emission trading blocs, one consisting of the European Union and eastern Europe and the other consisting of many of the remaining Annex I regions, is also considered. The analysis shows that the carbon penalty varies significantly across regions when no emissions trading is allowed. In aggregate, the cost of abatement to Annex I regions falls with emissions trading.Under the assumption of the two trading blocs, the carbon penalty in the European bloc is higher than with full Annex I trading. The paper also considers the impact on developing countries and the role of carbon leakage in determining the economic impacts on Annex I regions.



CO2 Emissions Control Agreements: Incentives for Regional Participation

Stephen C. Peck and Thomas J. Teisberg

Year: 1999
Volume: Volume 20
Number: Special Issue - The Cost of the Kyoto Protocol: A Multi-Model Evaluation
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-NoSI-14
View Abstract

Abstract:
This paper explores the incentives for participation in international CO2 control agreements using tradable emission permits. We employ a welfare analysis in a two-region model to explore these incentives. The two regions are Annex-I (A-I) and Non-Annex I (Non-A-I). A key insight underlying the analysis is that emission permit allocations must not depart too far from optimal emissions paths, to avoid creating future incentives to drop out of the agreement. We find a range of permit allocations that improves the welfare of both the Annex-I and the Non-Annex I, and compare them with allocations based on regional population or GDP. In addition, we examine the implications of the Kyoto agreement in the context of this welfare analysis. We find that the Kyoto agreement transfers wealth from A-I to the Non-A-I, while failing to realize tile efficiency gains to be hoped for from an agreement to control CO2 emissions.



Climate Politics from Kyoto to Bonn: From Little to Nothing?

Christoph Bohringer

Year: 2002
Volume: Volume23
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No2-2
View Abstract

Abstract:
We investigate how the U.S. withdrawal from the Kyoto Protocol and the provisions of the Bonn climate Policy conference on sink credits and emissions trading will change the economic and environmental impacts of the Protocol in its original form. Based on simulations with a large-scale computable general equilibrium model, we find that the U.S. withdrawal and amendments of Bonn reduce the Kyoto Protocol's impact to business-as-usual without binding emission constraints. U.S. compliance under the new Bonn provisions, on the other hand, would accommodate a substantial cut in global emissions at relatively small compliance costs for OECD countries.



Market Power in International Carbon Emissions Trading: A Laboratory Test

Bjorn Carlen

Year: 2003
Volume: Volume24
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol24-No3-1
View Abstract

Abstract:
The prospect that governments of one or a few large countries, or trading blocs, would engage in trading of international greenhouse gas emissions has led several policy analysts to express concerns that trade would be influenced by market power. The experiment reported here mimics a case where twelve countries, one of which is a large buyer (the mirror-image of a large seller), trade carbon emissions on an emissions exchange (a double-auction market) and where traders have quite accurate information about the underlying net demand. The findings deviate from those of the standard version of market power effects in that trade volumes and prices converge on competitive levels.




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