پتانسیل اتحادیه اروپا برای انتشار استراتژیک تجارت با مجوز قرارداد فروش
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|19729||2011||21 صفحه PDF||سفارش دهید||محاسبه نشده|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Resource and Energy Economics, Volume 33, Issue 1, January 2011, Pages 247–267
Strategic market behavior by permit sellers will harm the European Union (EU) as it is expected to become a large net buyer of permits in a follow-up agreement to the Kyoto Protocol. In this paper, we explore how the EU could benefit from making permit trade agreements with non-EU countries. These trade agreements involve permit sales requirement, complemented by a financial transfer from the EU to the other contract party. Such agreements would enable the EU to act strategically in the permit market on behalf of its member states, although each member state is assumed to behave as a price taker in the permit market. Using a stylized numerical simulation model, we show that an appropriately designed permit trade agreement between the EU and China could significantly cut the EU's total compliance cost. This result is robust for a wide range of parameterizations of the simulation model.
Reaching an international agreement on climate policy for the post-Kyoto period after 2012 is proving to be difficult. The latest Conference of the Parties (CoP) meeting in Copenhagen in 2009 did not succeed in reaching a consensus on global emission reduction targets, let alone a distribution of emission targets across countries. However, the negotiation process is continuing along different tracks in 2010. The starting assumption for our analysis is that these negotiations will result in the future in some form of a climate agreement, including provisions for flexible instruments that are similar to the emissions trading and project-based mechanisms in the current Kyoto Protocol. The purpose of this paper is to study the optimal strategy of a group of net buyers of emission permits (for instance, the European Union (EU)) under such a future follow-up agreement to the Kyoto Protocol, taking into account possible noncompetitive behavior by some of the market participants. In 1997, the Kyoto Protocol was signed during the third CoP of the United Nations Framework Convention on Climate Change (UNFCCC). The 39 signatories of the Protocol – listed in the so-called Annex-B, and representing about two thirds of global emissions in 1990 – promised to reduce their emissions of six greenhouse gasses by 5.2%, compared with 1990 levels, by 2008–2012 (the so-called first commitment period). Each Annex-B country has been allocated an initial amount of emission permits corresponding to their quantitative emissions limits. The permits can be traded with other Annex-B countries. Furthermore, Annex-B countries are allowed to meet part of their reduction commitments through investment in emission-reducing projects in developing countries (the Clean Development Mechanism (CDM)), or in other industrialized countries (Joint Implementation (JI)). The Protocol does not impose binding emission targets on developing countries signatories.1 Despite persistent refusal by the USA to ratify it, the Kyoto Protocol came into force in 2005. It is well recognized that there are at least two important shortcomings of the original Kyoto agreement.2 First, the global emission reduction achieved by the Kyoto Protocol will be very limited.3 Second, this global emission reduction will not be produced in a cost-efficient manner for two reasons: first, the number of countries participating is limited, meaning that many low-cost abatement options in developing countries cannot be fully exploited (see, among others, Stewart and Wiener (2003));4 and second, a number of studies concluded that Russia and other former Soviet republics and Eastern European countries will become large sellers of permits (see Criqui et al., 1999, Weyant and Hill, 1999, Weyant, 1999 and Sager, 2003). If large permit traders exploit their market power in the permit market, cost effectiveness is no longer achieved; see Hahn (1984) and Westskog (1996).5 Böhringer (2002) concluded that the Former Soviet Union can significantly increase its benefit from the Kyoto agreement by exploiting its market power in the permit market, which implies that marginal abatement costs are not equalized across the participating countries and, hence, the permit price will become higher than would occur under perfectly competitive permit market conditions. As a result, the total emission reduction will be produced at an excessively high cost compared with the ideal cost-efficient burden sharing. It is possible that the prospect of high compliance costs is making countries reluctant to accept ambitious emission reduction targets for a future climate agreement. In the current Kyoto Protocol, the only policy instrument for distributing costs between participants is the initial allocation of tradable permits across countries. As long as burden-sharing considerations are only taken care of through the initial distribution of permits, it is likely that some countries will become large traders and will benefit from exercising market power also in the post-Kyoto emissions permits market.6 Furthermore, if a future follow-up agreement does not specify any minimal levels of some particular domestic climate policy instruments, as was the case under the original Kyoto Protocol, governments can act strategically in the international permit market by steering their domestic emission levels through domestic taxes/domestic permits or direct regulations. Strategic permit trade among permit sellers will harm the EU. The EU as a group is expected to become a large net buyer of permits in a follow-up agreement to the Kyoto Protocol as it has announced repeatedly its willingness to accept tough emissions ceilings. Our analysis will focus on the possible strategies of the EU as a group of net buyers of permits, although we will assume that each individual EU country acts as a competitive price-taking agent in the permit market.7 The EU countries are obvious candidates for cooperation in the permit market as they presently cooperate on their climate policy and have established an internal emission trading scheme (the Emission Trading Scheme (ETS)). In addition, the EU countries have already shown their willingness to cooperate on net permit demand by determining the degree to which their emissions target is to be met by domestic reduction measures relative to permit purchases (the so-called supplementarity debate in the context of climate policy).8. Furthermore, the EU has established a common target for its emissions for several years ahead, in particular for the year 2020. We believe, therefore, that it is reasonable to assume that the EU will play a leading role in establishing possible future agreements with other countries regarding emissions trading for the post-Kyoto period. In this paper, we show that the EU can benefit from making appropriately designed permit trade agreements with large strategic sellers of emissions permits, either genuine participants in emissions trading or large suppliers of project-based emission reductions such as occurs under the CDM in the current Kyoto Protocol. Such agreements with individual or groups of permit sellers should specify the amount of permits that the countries should sell in the market in return for financial compensation. This type of contract would enable the EU to act strategically in the permit market on behalf of its member states. Similar ideas were put forward by Ellerman and Wing (2000) in the context of the supplementary discussion in the aftermath of the signing of the 1997 Kyoto Protocol. However, Ellerman and Wing (2000) considered the case where the EU exercises market power on the demand side of the permit market (through the supplementary requirement that a particular fraction of a country's obligation is to be met by domestic emission reductions), whereas we consider the case where the EU exercises market power on the supply side of the market (through bilateral contracts with major permit exporters). Our work relates also to the paper by Bernard et al. (2008), who modeled the impact of the entry of China in the international permit market on the market power of Russia. Our approach differs, however, because we allow for the EU to make strategic contracts with new entrants to influence the market outcome. The Kyoto Protocol allows for emissions trading as a means of meeting a country's obligations. The contract discussed in this paper can be viewed as an emission trading arrangement, where one party (the EU) pays another country for implementing a minimum amount of abatement measures, and where this other country sells the subsequent excess emission permits (or generated CDM-credits) on the international market. Hence, legally speaking, the type of bilateral contract we consider in this paper is not against the spirit of the UNFCCC or the 1997 Kyoto Protocol. To investigate the possibility for bilateral contracts, we consider first a stylized theoretical model of the international permit market. We model the situation as a two-stage game. In the first stage, the EU offers a trade contract to one or several other countries. In the second stage, international permit trade occurs, possibly involving strategic behavior by some major permit exporters. Second, we turn to a stylized numerical simulation model of the international permit market to quantify the impact of bilateral agreements on the equilibrium permit price and regional welfare levels. The rest of the paper is organized as follows. In Section 2, we describe the climate agreement. In Section 3, we first characterize emission behavior by price-taking market participants (Section 3.1), and then turn to noncompetitive market behavior (Section 3.2) in the absence of permit trade contracts. In Section 4, we consider a situation where the EU undertakes an initiative to offer trade contracts to one or several other participants prior to the beginning of the trading period (i.e., the post-Kyoto period). We characterize the optimal contract design and the optimal choice of contract partners. A numerical illustration of our model is given in Section 5. Section 6 summarizes our main findings.