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Erschienen in:

2015 | OriginalPaper | Buchkapitel

Principles of Emissions Trading

verfasst von : Julien Chevallier

Erschienen in: Handbook of Climate Change Adaptation

Verlag: Springer Berlin Heidelberg

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Abstract

International emissions trading schemes include the Kyoto Protocol and the European Union Emissions Trading Scheme. This chapter documents the main principles behind the functioning of such permits markets, which represent popular environmental regulation tools. Among other design issues, this chapter discusses the various allocation mechanisms available to the regulator. Besides, this chapter underlines the role played by intertemporal flexibility mechanisms (e.g., banking and borrowing) which allow reducing overall compliance costs. Overall, the goal of this chapter is to present in standard textbook reference terms the construction of an emissions trading program, be it at the regional, national, or international level. The interested reader can gain valuable insights by referring to this core text, which contains a descriptive analysis of the main provisions that need to be taken care of when creating such an environmental market.

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Vorheriges Kapitel Pricing Innovation in Climate Change Adaptation (CCA): Hedonic Valuation of R&D That Can Favor CCA

Nächstes Kapitel Strategic Environmental Assessment as a Tool to Integrate Climate Change Adaptation: A Perspective for Nigeria

For an exhaustive literature review on permits trading and market power, see Petrakis et al. (1999).

The notion of success may be approximated by various effects (preexisting regulatory environment, technology innovation and diffusion, reduction of regulatory uncertainty, aggregate cost savings, etc.), but we will focus on the efficiency of the permits price, i.e., its ability to reflect current information on spot and future prices.

This expression was coined by Stavins (1998).

See Baron (1999), Burniaux (1999), Bernard et al. (2003), Bohringer et al. (2006), Holtsmark (2003).

Such negotiation with Russia was determinant for the Kyoto Protocol to enter into force on February 16, 2005.

See Guesnerie (2006).

See Muller (2002).

Note that the implicit assumptions of the existence of such an environmental Kuznets curve (the environment is a superior good and environmental regulation becomes stricter through time at higher levels of GDP per capita) are left out of the debate.

See Kolstad (2005).

p. 295

The definition of an installation effected in the EU ETS is the same as for Integrated Pollution Prevention and Control (IPPC) that is a principal environmental regulatory directive in the EU. Installations are defined as a stationary technical unit where one or more activities covered by the EU ETS are carried out and any other directly associated activities, which have a technical connection with the activities carried out on that site and which could have an effect on emissions and pollution.

See Table 2 for a quick review of Kyoto units.

The EU CO₂ emissions trading scheme was inspired by successful cap-and-trade programs for SO₂ and NOx in the USA (Ellerman and Montero 2007).

p. 2

p. 7

The liquidity market is defined as a market where a large volume of trades can be immediately executed with minimum effect on price (Kyle 1985).

Typically, the cheapest abatement source is found where the larger sources are located.

p. 161

Kling and Rubin (1997) suggest the implementation of a discount rate equal to the industry average rate of interest used to finance medium-term capital expenditures (p. 112).

p. 251

p. 295

Paragraph II.XV

p. 149

p. 33

p. 1

As soon as they are connected by the International Transaction Log

See for instance the Regional Greenhouse Gas Initiative at http://www.rggi.org/ and a review of regional initiatives by Roy (2007).

According to Harrison (2003), this multisource program regulating SO₂ and NO_x emissions had overlapping control cycles and trading between control groups, so de facto 6-month banking and borrowing. But the temporal flexibility was not enough for such a limited geographic scope, and as unusual weather conditions and lack of new capacity placed high demand on existing units, the permit price rose from $5,000 to $90,000 per ton, i.e., multiplied by 18. The disconnection of electricity and environmental markets associated with other program design failures led the State to eventually take over and provide adequate electricity supply. At the same time, prices of future vintages (borrowing) revealed the short-term nature of the crisis and recognized that it was an unusual case. This experience raises the question of adding several sectors in the same permit market like the EU ETS: wouldn’t it be preferable to have different prices for different markets?

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Titel: Principles of Emissions Trading
verfasst von: Julien Chevallier
Verlag: Springer Berlin Heidelberg
Buch: Handbook of Climate Change Adaptation
Print ISBN: 978-3-642-38669-5

Electronic ISBN: 978-3-642-38670-1

Copyright-Jahr: 2015
DOI: https://doi.org/10.1007/978-3-642-38670-1_1

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