trading in hot air

[Ken Hanly]

I assume you know what hot air is in this context. There is nothing
particularly funny about this paper and it is surely perfectly
intelligible to anyone with a basic understanding of the economics of
trading in emissions rights. It isn't pomo stuff. Hot air refers to
tradable reduction in emissions levels that will not result in any net
reduction in total emissions if traded.
Russia and the Ukraine have plenty of hot air to trade. Their
emissions levels are far below the base level since their whole
industrial base is shot to hell since the transition to capitalism.
Trading this hot air does bugger all to reduce total emissions when
purchased by another country that is above the target level. On the
other hand if China or India reduced emissions that could be verified
below target levels and could trade the difference this would actually
encourage the reduction in emissions. At least that is my
understanding of the scenario.
There is disagreement as to policies on trading in hot air. If it is
simply a matter of property rights trading in hot air should be
allowed. There are problems with forbidding trading in hot air
too. Countries such as Germany have a lot of hot air to trade since
they took over the GDR and
dismantled much of the polluting industrial base. Compared to the base
year their emissions will thus be much less than they would have been
otherwise.

    Of course the whole theology of emissions trading might be
questioned but within that
context the paper is not at all strange and makes significant points.

   Cheers, Ken Hanly

Doug Henwood wrote:


> [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