Carbon trading across sources and periods constrained by the Marrakesh Accords

  • Godal O
  • Klaassen G
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Abstract

We examine the potential effects on permit prices and abatement costs of four compliance rules governing emissions trade across sources and periods in the Kyoto Protocol: The banking rule that allows excess permits to be used later; the restoration rate rule that penalizes borrowing; the commitment period reserve rule that limits sales; and finally, the suspension rule that restricts borrowing and sales. Our framework is a two-period model where parties may be out of compliance in the Kyoto period, but are assumed to comply at a later time. Under varying assumptions about market power and US participation, we find that the rules may have pronounced effects on individual costs, but overall efficiency is not severely affected. © 2006 Elsevier Inc. All rights reserved.

Author-supplied keywords

  • Banking
  • Borrowing
  • Compliance rules
  • Emissions trading
  • Kyoto Protocol
  • Market power

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Authors

  • Odd Godal

  • Ger Klaassen

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