Hot Air for Sale: A Quantitative Assessment of Russia's Near-Term Climate Policy Options

23 Pages Posted: 18 Apr 2006 Last revised: 26 Aug 2008

See all articles by Christoph Böhringer

Christoph Böhringer

University of Oldenburg - Economic Policy; Centre for European Economic Research (ZEW)

Ulf Moslener

Frankfurt School of Finance & Management gemeinnützige GmbH

Bodo Sturm

Leipzig University of Applied Sciences - HTWK Leipzig

Date Written: April 2006

Abstract

Since January 1st 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 may be linked at some time 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 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 when 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.

Keywords: market power, hot air, climate policy

JEL Classification: D42, Q25

Suggested Citation

Bohringer, Christoph and Moslener, Ulf and Sturm, Bodo, Hot Air for Sale: A Quantitative Assessment of Russia's Near-Term Climate Policy Options (April 2006). ZEW - Centre for European Economic Research Discussion Paper No. 06-016. Available at SSRN: https://ssrn.com/abstract=892286 or http://dx.doi.org/10.2139/ssrn.892286

Christoph Bohringer (Contact Author)

University of Oldenburg - Economic Policy ( email )

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany
+49 6211235200 (Phone)
+49 6211235226 (Fax)

Ulf Moslener

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Bodo Sturm

Leipzig University of Applied Sciences - HTWK Leipzig ( email )

Leipzig
Germany

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