Compliance and Imperfect Intertemporal Carbon Trading

Odd Godal () and Ger Klaassen ()
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Odd Godal: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Ger Klaassen: International Institute of Applied Systems Analysis, Postal: Laxenburg, Austria

No 09/03, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: This paper examines three compliance mechanisms of the Kyoto Protocol: (i) the restoration rate, (ii) the commitment period reserve rule, and (iii) the suspension mechanism, all potentially constraining greenhouse gas emissions trading across time and space. The joint effect of these mechanisms on prices and costs is studied in a twoperiod model under various assumptions about the competitiveness of the permit market and US participation. The analytical results indicate that the restoration rate can make discounted permit prices decrease over time. With the commitment period reserve, marginal costs may not only be lower, but also higher than the permit prices. The suspension rule will under quite general circumstances not affect prices and costs; only shift non-compliance from future sellers to future buyers. The numerical results suggest that with imperfect permit markets and non-participation of the US in the Kyoto Protocol in 2010, none of the three rules becomes binding.

Keywords: compliance; market power; emissions trading; Kyoto Protocol (search for similar items in EconPapers)
JEL-codes: Q25 Q28 Q48 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2003-07-23
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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