Strategic Partitioning of Emissions Allowances. Under the EU Emission Trading Scheme

Christoph Böhringer and Knut Einar Rosendahl

Discussion Papers from Statistics Norway, Research Department

Abstract: The EU Emission Trading Scheme (ETS) is breaking new ground in the experience with emission trading regimes across multiple jurisdictions. Since the EU ETS covers only some industries, it implies a hybrid emission control scheme where EU member states must apply complementary domestic emissions regulation for the non-trading sectors of their economies in order to comply with their national emission reduction targets. The EU ETS thus opens up for strategic partitioning of national emissions budgets by the member states between trading and non-trading sectors. In this paper we examine the potential effects of such strategic behavior on compliance cost and emissions prices. We show that concerns on efficiency losses from strategic partitioning are misplaced if all the member states behave in a Nash-Cournot manner. However, if a single country takes the official partitioning of the other countries as a reference point, there is substantial scope for exploiting market power.

Keywords: Emissions Trading; Allocation of Quotas; Strategic Behavior (search for similar items in EconPapers)
JEL-codes: C61 C72 Q25 (search for similar items in EconPapers)
Date: 2008-04
New Economics Papers: this item is included in nep-cse, nep-eec, nep-ene, nep-env, nep-gth and nep-reg
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Related works:
Journal Article: Strategic partitioning of emission allowances under the EU Emission Trading Scheme (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ssb:dispap:538

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