Carbon Trading with Imperfectly Observable Emissions

Odd Godal, Yuri Ermoliev, Ger Klaassen () and Michael Obersteiner

Environmental & Resource Economics, 2003, vol. 25, issue 2, 169 pages

Abstract: The Kyoto Protocol foresees emission trading but does not yet specify verification of (uncertain) emissions. This paper analyses a setting in which parties can meet their emission targets by reducing emissions, by investing in monitoring (reducing uncertainty of emissions) or by (bilaterally) trading permits. We derive the optimality conditions and carry out various numerical simulations. Our applications suggest that including uncertainty could increase compliance costs for the USA, Japan and the European Union. Central Europe and the Former Soviet Union might be able to gain from trading due to higher permit prices. Emissions trading could also lower aggregate uncertainty on emissions. Copyright Kluwer Academic Publishers 2003

Keywords: carbon; emissions trading; monitoring; simulation; uncertainty (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1023/A:1023914324084

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