trading in hot air

Doug Henwood dhenwood at panix.com
Tue Jan 25 17:24:02 PST 2000


[ah, economists!]

"Estimating the Size of the Potential Market for the Kyoto

Flexibility Mechanisms"

BY: ZHONGXIANG ZHANG

University of Groningen

Document: Available from the SSRN Electronic Paper Collection:

http://papers.ssrn.com/paper.taf?abstract_id=200073

Date: December 1999

Contact: ZHONGXIANG ZHANG

Email: Mailto:Z.X.Zhang at Rechten.RUG.NL

Postal: University of Groningen

Department of Economics and Public Finance

P.O. Box 716

9700 AV Groningen, THE NETHERLANDS

Phone: +31 50 3636882

Fax: +31 50 3637101

ABSTRACT:

The Kyoto Protocol incorporates emissions trading, joint

implementation and the clean development mechanism to help Annex

I countries to meet their Kyoto targets at a lower overall cost.

This paper aims to estimate the size of the potential market for

all three flexibility mechanisms under the Kyoto Protocol over

the first commitment period 2008-2012, both on the demand side

and on the supply side. Based on the national communications

from 35 Annex I countries, the paper first estimates the

potential demand in the greenhouse gas offset market. Then, the

paper provides a quantitative assessment of the implications of

the EU proposal for concrete ceilings on the use of flexibility

mechanisms for the division of abatement actions at home and

abroad. Finally, using the 12-region's marginal abatement

cost-based model, the paper estimates the contributions of three

flexibility mechanisms to meet the total emissions reductions

required of Annex I countries under the four trading scenarios

respectively. Our results clearly demonstrate that the fewer the

restrictions on trading the gains from trading are greater. The

gains are unevenly distributed, however, with Annex I countries

that have the highest autarkic marginal abatement costs tending

to benefit the most. With respect to developing countries, their

net gains are highest when trading in hot air is not allowed,

and China and India account for about three-quarters of the

total developing countries' exported permits to the Annex I

regions.

JEL Classification: Q28, Q25, Q48, Q43



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