Emission Quota Trade Among the Few: Laboratory Evidence of Joint Implementation Among Committed Countries. The purpose of the laboratory tests reported here is to identify a well-functioning design, tailored for an upcoming unique experiment using real-world relevant decision makers for carbon emission reductions trade among four countries committed to binding carbon emission limits, a form of so-called joint implementation. The design is required to promote high trade efficiency and a limited scope for arbitrage. All designs tested reached high levels of efficiency (87-99 %), which is noteworthy given the small number of traders. Attempts to adjust the design to reduce or eliminate arbitrage were successful in the final test rounds.
The Role of Market Power in International Emissions Trading: A Laboratory Experiment. Several policy advisers have expressed concerns that market power will characterize international greenhouse gas emissions trading, especially since presumed large buyers or sellers, e.g., the US or Russia or, eventually, China, would be allowed to trade directly on the market. The experiment reported here mimics a case where twelve countries, one of which is a large buyer, trade carbon emissions on a double auction market and where traders have essentially full information about the underlying net demand. The findings deviate from those of the standard version of market power effects in that trade volumes are efficient and prices are for the most part competitive.
Cost-effective Approaches to Attracting Low-Income Countries to International Emissions Trading: Theory and Experiments. The cost-effectiveness of the Kyoto Protocol and any similar non-global climate treaty would be enhanced by attracting as many new countries as possible to international emissions trading and achieving these additions as soon as possible. This paper focuses on two forms of compensation that can be used to attract poor, risk-averse countries to participate in emissions trading. The theoretical as well as experimental evidence presented here suggests that, if poor countries are more risk averse than rich countries, partial compensation in terms of financial transfers is more cost-effective than relying solely on giving the poor countries large emission quotas as has been the case so far. In fact, the theoretical argument for cost-effectiveness indicates that significant parts of the emission quotas to new participating countries should be replaced by financial transfers. Using money for partial compensation would also reduce the risk for 'hot air' allocations and the ensuing political obstacles to cost-effectiveness that such allocations tend to create.
On the Interaction Effects of Environmental Policies. Recent literature has shown that environmental policies interact with the tax system in a way that may substantially increase the social cost of environmental control, the so-called interaction effect. So far, this literature has focused on specific types of environmental problems and an interaction effect that arises on the labor market. Allowing for more than one primary factor and other types of environmental problems, other interaction effect may arise. Some of these may reduce the social cost of environmental control. This is so, for example, if inputs that harm the environment when used in one activity are harmless in others, as is the case for some location-specific externalities. In fact, the aggregate interaction effect may well be cost reducing. In addition, it is even possible that the interaction effect on the labor market is cost reducing.
Stockholm: Stockholm University, 2000. , 11 p.