ZEW Discussion Papers
Market Power in International Emission Trading
Böhringer, Christoph and Andreas Löschel (2001), Market Power in International Emission Trading, ZEW Discussion Paper No. 01-58, Mannheim. Download
This paper investigates the implications of U.S. withdrawal on environmental effectiveness, economic efficiency, and the distribution of compliance costs taking into account market power of the Former Soviet Union (FSU) on emission permit markets.
While exercise of
market power on behalf of FSU under U.S. compliance has no environmental impact as compared to competitive permit trade, it prevents the Kyoto Protocol from boiling down to
business-as-usual after U.S. withdrawal.
Non-compliance of the U.S. increases the efficiency
losses from FSU market power and reduces the compliance costs of remaining OECD countries but these gains must be weighted against a dramatic loss in overall environmental
effectiveness.
Clearly, the big losers from U.S. withdrawal are FSU and its competitive fringe (Central and Eastern Europe) that suffer from a huge decline in permit sales revenues.
Keywords: climate policy, emission trading, market power
