Frictions in Project-Based Supply of Permits |
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Authors: | Matti Liski Juha Virrankoski |
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Institution: | (1) Department of Economics, Helsinki School of Economics and MIT Center for Energy and Environmental Policy Research, P.O. Box 1210, 00101 Helsinki, Finland;(2) Department of Economics, Faculty of Social Sciences, University of Helsinki, P.O. Box 17 (, Arkadiankatu 7, 00014 Helsinki, Finland |
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Abstract: | Emissions trading in climate change can entail large overall cost savings and transfers between developed and developing countries. However, the search for acceptable JI or CDM projects implies a deviation from the perfect market framework used in previous estimations. Our model combines the search market for projects with a frictionless permit market to quantify the supply-side frictions in the CO2 market. We also decompose the effects of frictions into the effects of search friction, bargaining, and bilateralism. A calibration using previous cost estimates of CO2 reductions illustrate changes in cost savings and allocative implications. |
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Keywords: | climate change matching pollution permits |
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