Cost Effective and Environmentally Safe Emission Trading Under Uncertainty

T. Ermolieva, Y. Ermoliev, G. Fischer, M. Jonas and M. Makowski
Additional contact information
T. Ermolieva: Institute for Applied Systems Analysis
Y. Ermoliev: Institute for Applied Systems Analysis
G. Fischer: Institute for Applied Systems Analysis
M. Jonas: Institute for Applied Systems Analysis
M. Makowski: Institute for Applied Systems Analysis

Chapter Chapter 5 in Coping with Uncertainty, 2010, pp 79-99 from Springer

Abstract: Abstract The aim of this paper is to analyze robust cost-effective and environmentally safe carbon emission trading schemes under uncertainties of emissions and costs, and asymmetric information of participants. The proposed model allows to control explicitly the safety of Kyoto (or other) targets by taking long-term perspectives on emission trading. The dynamics of this scheme is driven by bilateral trades with different endogenous disequilibrium prices between mutually beneficial trades, but finally the system converges to cost-effective and environmentally safe global equilibrium. The safety constraints work as a discounting mechanism that discounts the reported emissions to detectable undershooting levels. This, in turn, provides incentives for participants to reduce uncertainties. The model shows that uncertainties and short term market perspectives may easily prevent price-based trading to be environmentally safe and cost-effective scheme. The desirable equilibrium emerges only under proper price-formation mechanisms. The role of the proposed computerized multi-agent trading system is central for dealing with long-term perspectives, irreversibility and lock-in equilibriums of trades. This system can be viewed as a device for decentralized collective regulation of trades based on unified approaches to modeling of uncertainty, calculation of costs and trading rules.

Keywords: Cost Function; Equilibrium Price; Trading Scheme; Abatement Cost; Emission Trading (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:lnechp:978-3-642-03735-1_5

Ordering information: This item can be ordered from
http://www.springer.com/9783642037351

DOI: 10.1007/978-3-642-03735-1_5

Access Statistics for this chapter

More chapters in Lecture Notes in Economics and Mathematical Systems from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().