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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.


Japan’s DBP between 2005 and 2012.Calculated from the data of Fig 1.
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pone.0132272.g007: Japan’s DBP between 2005 and 2012.Calculated from the data of Fig 1.

Mentions: The 2008–2009 global financial crisis slowed down economic growth in Annex B Parties. Due to the economic downturn, CO2 emissions from the Parties except the US decreased from 8,382 MtCO2 in 2008 to 7,803 MtCO2 in 2009 [24]. The Kyoto Protocol has no mechanism to adjust the balance between permit supply and demand. As the permit allocation to each country is fixed, the decrease in CO2 emissions increased the supply from transition countries, and decreased the demand of Japan, Canada, and other buyers (Fig 2). By Propositions 5 and 6, permit price monotonically decreases as permit supply (demand) increases (decreases). Fig 7 shows Japan’s DBP between 2005 and 2012. Japan’s DBP increased from 0.776 in 2007 to 0.893 in 2009, which means a 52% decrease in permit price (Eq (11)). This result suggests that the global financial crisis contributed to the demand-side dominance.


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

Honjo K - PLoS ONE (2015)

Japan’s DBP between 2005 and 2012.Calculated from the data of Fig 1.
© Copyright Policy
Related In: Results  -  Collection

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

pone.0132272.g007: Japan’s DBP between 2005 and 2012.Calculated from the data of Fig 1.
Mentions: The 2008–2009 global financial crisis slowed down economic growth in Annex B Parties. Due to the economic downturn, CO2 emissions from the Parties except the US decreased from 8,382 MtCO2 in 2008 to 7,803 MtCO2 in 2009 [24]. The Kyoto Protocol has no mechanism to adjust the balance between permit supply and demand. As the permit allocation to each country is fixed, the decrease in CO2 emissions increased the supply from transition countries, and decreased the demand of Japan, Canada, and other buyers (Fig 2). By Propositions 5 and 6, permit price monotonically decreases as permit supply (demand) increases (decreases). Fig 7 shows Japan’s DBP between 2005 and 2012. Japan’s DBP increased from 0.776 in 2007 to 0.893 in 2009, which means a 52% decrease in permit price (Eq (11)). This result suggests that the global financial crisis contributed to the demand-side dominance.

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.