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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.


Related in: MedlinePlus

Curves of the demand-side bargaining power (DBP) in hot and cold markets.The DBP is obtained by putting the number of sellers (s), supply data (C1, C2,…, Cs), and demand data (∣C−1∣) in Eq (12). Both markets contain 18 sellers (s = 18; Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Germany, Hungary, Latvia, Lithuania, Monaco, Poland, Romania, Russian Federation, Slovakia, Sweden, Ukraine, and the UK). The hot market is the real market shown by Fig 1. In the cold market, the supply from Russia and Ukraine is assumed to be zero. Each curve consists of 2,000 points of the DBPs corresponding to ∣C−1∣ = 1,2,…,2000 (MtCO2).
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pone.0132272.g005: Curves of the demand-side bargaining power (DBP) in hot and cold markets.The DBP is obtained by putting the number of sellers (s), supply data (C1, C2,…, Cs), and demand data (∣C−1∣) in Eq (12). Both markets contain 18 sellers (s = 18; Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Germany, Hungary, Latvia, Lithuania, Monaco, Poland, Romania, Russian Federation, Slovakia, Sweden, Ukraine, and the UK). The hot market is the real market shown by Fig 1. In the cold market, the supply from Russia and Ukraine is assumed to be zero. Each curve consists of 2,000 points of the DBPs corresponding to ∣C−1∣ = 1,2,…,2000 (MtCO2).

Mentions: The excessive permit supply from transition economies (hot air) increases the DBP and decreases permit price. Suppose that permit supply and demand are independent of each other, and that the buyer’s WTP is constant. Permit price monotonically decreases as the supply from a seller increases (Proposition 6). A decrease in permit price means an increase in the DBP (Proposition 2). Fig 5 compares the DBP curves in two types of markets: hot and cold. Both markets contain 18 sellers (s = 18). The hot market is the real market shown by Fig 1. In the cold market, the supply from Russia and Ukraine is assumed to be zero. In both markets, the DBP monotonically decreases as the demand increases (Proposition 5). The DBP in the hot market is greater than or equal to the DBP in the cold market. For instance, Japan’s DBP is 0.848 in the hot market, and is 0.786 in the cold market. The supply from Russia and Ukraine enables Japan to purchase permits at a 29% discount (Eq (11)). The hot air reinforces the demand-side dominance in the international permit market.


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

Honjo K - PLoS ONE (2015)

Curves of the demand-side bargaining power (DBP) in hot and cold markets.The DBP is obtained by putting the number of sellers (s), supply data (C1, C2,…, Cs), and demand data (∣C−1∣) in Eq (12). Both markets contain 18 sellers (s = 18; Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Germany, Hungary, Latvia, Lithuania, Monaco, Poland, Romania, Russian Federation, Slovakia, Sweden, Ukraine, and the UK). The hot market is the real market shown by Fig 1. In the cold market, the supply from Russia and Ukraine is assumed to be zero. Each curve consists of 2,000 points of the DBPs corresponding to ∣C−1∣ = 1,2,…,2000 (MtCO2).
© Copyright Policy
Related In: Results  -  Collection

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

pone.0132272.g005: Curves of the demand-side bargaining power (DBP) in hot and cold markets.The DBP is obtained by putting the number of sellers (s), supply data (C1, C2,…, Cs), and demand data (∣C−1∣) in Eq (12). Both markets contain 18 sellers (s = 18; Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Germany, Hungary, Latvia, Lithuania, Monaco, Poland, Romania, Russian Federation, Slovakia, Sweden, Ukraine, and the UK). The hot market is the real market shown by Fig 1. In the cold market, the supply from Russia and Ukraine is assumed to be zero. Each curve consists of 2,000 points of the DBPs corresponding to ∣C−1∣ = 1,2,…,2000 (MtCO2).
Mentions: The excessive permit supply from transition economies (hot air) increases the DBP and decreases permit price. Suppose that permit supply and demand are independent of each other, and that the buyer’s WTP is constant. Permit price monotonically decreases as the supply from a seller increases (Proposition 6). A decrease in permit price means an increase in the DBP (Proposition 2). Fig 5 compares the DBP curves in two types of markets: hot and cold. Both markets contain 18 sellers (s = 18). The hot market is the real market shown by Fig 1. In the cold market, the supply from Russia and Ukraine is assumed to be zero. In both markets, the DBP monotonically decreases as the demand increases (Proposition 5). The DBP in the hot market is greater than or equal to the DBP in the cold market. For instance, Japan’s DBP is 0.848 in the hot market, and is 0.786 in the cold market. The supply from Russia and Ukraine enables Japan to purchase permits at a 29% discount (Eq (11)). The hot air reinforces the demand-side dominance in the international permit market.

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.


Related in: MedlinePlus