Hot air for sale: a quantitative assessment of Russia’s near-term climate policy options |
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Authors: | Christoph Böhringer Ulf Moslener Bodo Sturm |
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Institution: | (1) Department of Economics, University of Oldenburg, 26111 Oldenburg, Germany;(2) Centre for European Economic Research (ZEW), P.O. Box 103443, 68034 Mannheim, Germany |
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Abstract: | Since January 2005 the European Union has launched an EU-internal emissions trading scheme (EU ETS) for emission-intensive
installations as the central pillar to comply with the Kyoto Protocol. The EU ETS will be linked to a Kyoto emissions market
where greenhouse gas emission allowances of signatory Kyoto countries can be traded. In this paper we investigate the implications
of Russian market power for environmental effectiveness and regional compliance costs to the Kyoto Protocol taking into account
potential linkages between the Kyoto emissions market and the EU ETS. We find that Russia may have incentives to join the
EU ETS as long as the latter remains relatively separated from the Kyoto international emissions market. In this case, Russia
can exert monopolistic price discrimination between two separated markets thereby maximizing revenues from hot air sales.
The EU will be able to substantially reduce compliance costs if it does not restrain itself to EU-internal emission regulation
schemes. However, part of the gains from extra-EU emissions trading will come at the expense of environmental effectiveness
as (more) hot air will be drawn in.
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Keywords: | Market power Hot air Climate policy |
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