Banning banking in EU emissions trading?

Joachim Schleich, Karl-Martin Ehrhart (), Christian Hoppe () and Stefan Seifert
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Karl-Martin Ehrhart: Universitaet Karlsruhe, Postal: RZ Zirkel 2 D-76128 Karlsruhe
Christian Hoppe: Universitaet Karlsruhe, Postal: RZ Zirkel 2 D-76128 Karlsruhe
Stefan Seifert: Universitaet Karlsruhe, IWM, Postal: Englerstraße 14, D-76128 Karlsruhe

No 04-60, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: Admitting banking in emissions trading systems reduces overall compliance costs by allowing for inter-temporal flexibility: cost savings can be traded over time. However, unless individual EU Member States (MS) decide differently, the transfer of unused allowances from the period of 2005-2007 into the first commitment period under the Kyoto Protocol, i.e. 2008�2012, will be prohib-ited. In this paper, we first explore the implications of such a ban on banking when initial emission targets are lenient. This analysis is based on a simulation which was recently carried out in Germany with companies and with a student control group. The findings suggest that an EU-wide ban on banking would lead to efficiency losses in addition to those losses which arise from the lack of inter-temporal flexibility. Second, we use simple game-theoretic considerations to argue that, under reasonable assumptions, such an EU-wide ban on banking will be the equilibrium outcome. Thus, to avoid a possible prisoners� dilemma, MS should co-ordinate their banking decisions.

Pages: 33 pages
Date: 2004-12-03
New Economics Papers: this item is included in nep-cmp, nep-ene and nep-env
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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Journal Article: Banning banking in EU emissions trading? (2006)
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