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Cooperative Emissions Trading Game: International Permit Market Dominated by Buyers.

Honjo K - PLoS ONE (2015)

Bottom Line: The Kyoto Protocol introduced international emissions trading (IET) to accelerate the reduction of carbon dioxide (CO2) emissions.I evaluated the demand-side and supply-side bargaining power (DBP and SBP) using Shapley value, and obtained the following results: (1) Permit price is given by the product of the buyer's willingness-to-pay and the SBP (= 1 - DBP). (2) The DBP is greater than or equal to the SBP.These results indicate that buyers can suppress permit price to low levels through bargaining.

View Article: PubMed Central - PubMed

Affiliation: Center for Social and Environmental Systems Research, National Institute for Environmental Studies, Tsukuba, Ibaraki, Japan.

ABSTRACT
Rapid reduction of anthropogenic greenhouse gas emissions is required to mitigate disastrous impacts of climate change. The Kyoto Protocol introduced international emissions trading (IET) to accelerate the reduction of carbon dioxide (CO2) emissions. The IET controls CO2 emissions through the allocation of marketable emission permits to sovereign countries. The costs for acquiring additional permits provide buyers with an incentive to reduce their CO2 emissions. However, permit price has declined to a low level during the first commitment period (CP1). The downward trend in permit price is attributed to deficiencies of the Kyoto Protocol: weak compliance enforcement, the generous allocation of permits to transition economies (hot air), and the withdrawal of the US. These deficiencies created a buyer's market dominated by price-making buyers. In this paper, I develop a coalitional game of the IET, and demonstrate that permit buyers have dominant bargaining power. In my model, called cooperative emissions trading (CET) game, a buyer purchases permits from sellers only if the buyer forms a coalition with the sellers. Permit price is determined by bargaining among the coalition members. I evaluated the demand-side and supply-side bargaining power (DBP and SBP) using Shapley value, and obtained the following results: (1) Permit price is given by the product of the buyer's willingness-to-pay and the SBP (= 1 - DBP). (2) The DBP is greater than or equal to the SBP. These results indicate that buyers can suppress permit price to low levels through bargaining. The deficiencies of the Kyoto Protocol enhance the DBP, and contribute to the demand-side dominance in the international permit market.

No MeSH data available.


Permit supply and demand in Annex B Parties (annual average, 2008–2012).Calculated from CO2 emission data [24] and the Quantified Emission Limitation or Reduction Commitment (QELRC) of the Kyoto Protocol [5]. The US and the EU bubble are not included. Let G be annual average emissions from a country between 2008 and 2012, and let C be the emission cap (per year) of the country specified in the Kyoto Protocol. (A) If G < C, the country is a seller with a supply of C − G. (B) If C < G, the country is a buyer with a demand of G − C.
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pone.0132272.g001: Permit supply and demand in Annex B Parties (annual average, 2008–2012).Calculated from CO2 emission data [24] and the Quantified Emission Limitation or Reduction Commitment (QELRC) of the Kyoto Protocol [5]. The US and the EU bubble are not included. Let G be annual average emissions from a country between 2008 and 2012, and let C be the emission cap (per year) of the country specified in the Kyoto Protocol. (A) If G < C, the country is a seller with a supply of C − G. (B) If C < G, the country is a buyer with a demand of G − C.

Mentions: Second, the allocation of permits to transition economies (specifically Russia and Ukraine) was too generous [6, 11]. Due to the hot air, the IET under CP1 has suffered from the oversupply of permits (Fig 1). This trend was accelerated by the withdrawal of the US from the Kyoto Protocol. If the US participated in the IET, it would have been the largest buyer with a demand of 876 MtCO2 per year [24]. Several authors estimate the impacts of the US withdrawal on permit price using computational models [25–30]. The 2008–2009 global financial crisis widened the supply-demand gap (Fig 2). In 2009, CO2 emissions from Annex B Parties decreased in response to the economic downturn [24]. As a result, the demand-side permit shortfall decreased, while the supply-side permit surplus increased. The vulnerable market has been sustained by Japan’s purchasing power [12–15].


Cooperative Emissions Trading Game: International Permit Market Dominated by Buyers.

Honjo K - PLoS ONE (2015)

Permit supply and demand in Annex B Parties (annual average, 2008–2012).Calculated from CO2 emission data [24] and the Quantified Emission Limitation or Reduction Commitment (QELRC) of the Kyoto Protocol [5]. The US and the EU bubble are not included. Let G be annual average emissions from a country between 2008 and 2012, and let C be the emission cap (per year) of the country specified in the Kyoto Protocol. (A) If G < C, the country is a seller with a supply of C − G. (B) If C < G, the country is a buyer with a demand of G − C.
© Copyright Policy
Related In: Results  -  Collection

License
Show All Figures
getmorefigures.php?uid=PMC4526689&req=5

pone.0132272.g001: Permit supply and demand in Annex B Parties (annual average, 2008–2012).Calculated from CO2 emission data [24] and the Quantified Emission Limitation or Reduction Commitment (QELRC) of the Kyoto Protocol [5]. The US and the EU bubble are not included. Let G be annual average emissions from a country between 2008 and 2012, and let C be the emission cap (per year) of the country specified in the Kyoto Protocol. (A) If G < C, the country is a seller with a supply of C − G. (B) If C < G, the country is a buyer with a demand of G − C.
Mentions: Second, the allocation of permits to transition economies (specifically Russia and Ukraine) was too generous [6, 11]. Due to the hot air, the IET under CP1 has suffered from the oversupply of permits (Fig 1). This trend was accelerated by the withdrawal of the US from the Kyoto Protocol. If the US participated in the IET, it would have been the largest buyer with a demand of 876 MtCO2 per year [24]. Several authors estimate the impacts of the US withdrawal on permit price using computational models [25–30]. The 2008–2009 global financial crisis widened the supply-demand gap (Fig 2). In 2009, CO2 emissions from Annex B Parties decreased in response to the economic downturn [24]. As a result, the demand-side permit shortfall decreased, while the supply-side permit surplus increased. The vulnerable market has been sustained by Japan’s purchasing power [12–15].

Bottom Line: The Kyoto Protocol introduced international emissions trading (IET) to accelerate the reduction of carbon dioxide (CO2) emissions.I evaluated the demand-side and supply-side bargaining power (DBP and SBP) using Shapley value, and obtained the following results: (1) Permit price is given by the product of the buyer's willingness-to-pay and the SBP (= 1 - DBP). (2) The DBP is greater than or equal to the SBP.These results indicate that buyers can suppress permit price to low levels through bargaining.

View Article: PubMed Central - PubMed

Affiliation: Center for Social and Environmental Systems Research, National Institute for Environmental Studies, Tsukuba, Ibaraki, Japan.

ABSTRACT
Rapid reduction of anthropogenic greenhouse gas emissions is required to mitigate disastrous impacts of climate change. The Kyoto Protocol introduced international emissions trading (IET) to accelerate the reduction of carbon dioxide (CO2) emissions. The IET controls CO2 emissions through the allocation of marketable emission permits to sovereign countries. The costs for acquiring additional permits provide buyers with an incentive to reduce their CO2 emissions. However, permit price has declined to a low level during the first commitment period (CP1). The downward trend in permit price is attributed to deficiencies of the Kyoto Protocol: weak compliance enforcement, the generous allocation of permits to transition economies (hot air), and the withdrawal of the US. These deficiencies created a buyer's market dominated by price-making buyers. In this paper, I develop a coalitional game of the IET, and demonstrate that permit buyers have dominant bargaining power. In my model, called cooperative emissions trading (CET) game, a buyer purchases permits from sellers only if the buyer forms a coalition with the sellers. Permit price is determined by bargaining among the coalition members. I evaluated the demand-side and supply-side bargaining power (DBP and SBP) using Shapley value, and obtained the following results: (1) Permit price is given by the product of the buyer's willingness-to-pay and the SBP (= 1 - DBP). (2) The DBP is greater than or equal to the SBP. These results indicate that buyers can suppress permit price to low levels through bargaining. The deficiencies of the Kyoto Protocol enhance the DBP, and contribute to the demand-side dominance in the international permit market.

No MeSH data available.