Limits...
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.


Impacts of seller cartels on the DBP.Calculated from the data of Fig 1. The cartel of Russia and Ukraine controls 75% of the aggregate permit supply.
© Copyright Policy
Related In: Results  -  Collection

License
getmorefigures.php?uid=PMC4526689&req=5

pone.0132272.g006: Impacts of seller cartels on the DBP.Calculated from the data of Fig 1. The cartel of Russia and Ukraine controls 75% of the aggregate permit supply.

Mentions: Previous studies conclude that transition economies can increase permit price by forming seller cartels [26–28, 30, 33]. However, the demand-side dominance resists market power of seller cartels. Fig 6 shows the DBP curves under no cartel, the cartel of Russia and Ukraine, and the cartel of all sellers. The cartel of Russia and Ukraine controls 75% of the aggregate permit supply. If sellers form a cartel, the sellers withdraw from the market, which decreases the DBP (Proposition 7). At the same time, the seller cartel with a large permit supply enters the market, which increases the DBP. The cartel of Russia and Ukraine increases the SBP (decreases the DBP). For instance, Japan’s DBP decreases from 0.848 (under no cartel) to 0.822, which implies a 17% increase in permit price (Eq (11)). The SBP achieves the maximum value of 0.5 when all sellers form the grand cartel (s = 1, Proposition 3). In this case, the SBP is equal to the DBP. The formation of seller cartels weakens the demand-side dominance, but cannot reverse it.


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

Honjo K - PLoS ONE (2015)

Impacts of seller cartels on the DBP.Calculated from the data of Fig 1. The cartel of Russia and Ukraine controls 75% of the aggregate permit supply.
© Copyright Policy
Related In: Results  -  Collection

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

pone.0132272.g006: Impacts of seller cartels on the DBP.Calculated from the data of Fig 1. The cartel of Russia and Ukraine controls 75% of the aggregate permit supply.
Mentions: Previous studies conclude that transition economies can increase permit price by forming seller cartels [26–28, 30, 33]. However, the demand-side dominance resists market power of seller cartels. Fig 6 shows the DBP curves under no cartel, the cartel of Russia and Ukraine, and the cartel of all sellers. The cartel of Russia and Ukraine controls 75% of the aggregate permit supply. If sellers form a cartel, the sellers withdraw from the market, which decreases the DBP (Proposition 7). At the same time, the seller cartel with a large permit supply enters the market, which increases the DBP. The cartel of Russia and Ukraine increases the SBP (decreases the DBP). For instance, Japan’s DBP decreases from 0.848 (under no cartel) to 0.822, which implies a 17% increase in permit price (Eq (11)). The SBP achieves the maximum value of 0.5 when all sellers form the grand cartel (s = 1, Proposition 3). In this case, the SBP is equal to the DBP. The formation of seller cartels weakens the demand-side dominance, but cannot reverse it.

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.