The Political Economy of Negotiating International Carbon Markets

48 Pages Posted: 18 May 2020

See all articles by Maria Arvaniti

Maria Arvaniti

Centre of Economic Research, ETH Zurich

Wolfgang Habla

ZEW – Leibniz Centre for European Economic Research - Environmental and Resource Economics, Environmental Management Research

Date Written: 2020

Abstract

International carbon markets are frequently propagated as an efficient instrument for reducing CO2 emissions. We argue that such markets, despite their desirable efficiency properties, might not be in the best interest of governments who are guided by strategic considerations in negotiations. We identify the circumstances under which governments benefit or are harmed by cooperation in the form of an international market. Our results challenge the conventional wisdom that an international market is most beneficial for participating countries when they have vastly diverging marginal abatement costs; rather, it may be more promising to negotiate agreements with non-tradable emissions caps.

Keywords: cooperative climate policy, political economy, emissions trading, linking of permit markets, strategic delegation, strategic voting

JEL Classification: D72, H23, H41, Q54, Q58

Suggested Citation

Arvaniti, Maria and Habla, Wolfgang, The Political Economy of Negotiating International Carbon Markets (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-020, Available at SSRN: https://ssrn.com/abstract=3601577 or http://dx.doi.org/10.2139/ssrn.3601577

Maria Arvaniti

Centre of Economic Research, ETH Zurich ( email )

Zürichbergstrasse 18
Zürich, 8092
Switzerland

Wolfgang Habla (Contact Author)

ZEW – Leibniz Centre for European Economic Research - Environmental and Resource Economics, Environmental Management Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim
Germany

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