"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