Global emission ceiling versus international cap and trade: What is the most efficient system when countries act non-cooperatively?

Jacqueline Morgan and Fabien Prieur

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We model climate negotiations as a two-stage game. In the first stage of the game, players have to agree on a global emission cap (GEC). In the second stage, they non-cooperatively choose either their emission level or their emission quota, depending on whether emission trading is allowed, under the cap that potentially binds them together. A three heterogenous player quadratic game serves as a base for the analysis. In this framework, when the cap is non-binding, there exists a unique Nash equilibrium. When the emission cap is binding, among all the coupled constraints Nash equilibria, we select a normalized equilibrium by solving a variational inequality, which has a unique solution. In both scenarios – with and without emission trading – we show that there exists a non-empty range of values for which setting a binding cap improves all players’ payoff. It also appears that for some values of the cap, all players get a higher payoff under the GEC system alone than under the international cap and trade (ITC) system alone. Thus, the introduction of a GEC outperforms the ITC system both in terms of emission reduction and of payoff gains.

Keywords: environmental game; climate change; international cap and trade system; national emission quotas; global emission cap; normalized equilibria; variational and quasi-variational inequalities. (search for similar items in EconPapers)
JEL-codes: C72 Q28 (search for similar items in EconPapers)
Date: 2011-02-21
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth and nep-int
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.csef.it/WP/wp275.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:275

Access Statistics for this paper

More papers in CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Contact information at EDIRC.
Bibliographic data for series maintained by Dr. Maria Carannante ().