Permit Trading and Stability of International Climate Agreements

Journal of Applied Economics, Vol. 9, No. 1, May 2006

Posted: 14 Jun 2006

See all articles by Juan-Carlos Altamirano-Cabrera

Juan-Carlos Altamirano-Cabrera

Wageningen University - Social Sciences, Environmental Economics and Natural Resources Group

Michael Finus

University of Stirling

Abstract

We analyze the implication of different allocation schemes of CO2-emission permits for stability and the success of international climate agreements. Our model combines a game theoretical with an empirical module that comprises 12 world regions and captures important dynamic aspects of the climate change problem. We consider seven different permit allocation schemes. Two "pragmatic schemes" allocate permits according to a uniform emission reduction quota, five "equitable schemes" allocate permits based on some normative criteria frequently discussed in the literature permit trading can raise participation and the success of climate agreements, but pragmatic schemes are superior to equitable ones.

Keywords: climate agreements, tradable emission permits, coalition formation, self-enforcing agreements

JEL Classification: C72, Q25, Q28

Suggested Citation

Altamirano-Cabrera, Juan-Carlos and Finus, Michael, Permit Trading and Stability of International Climate Agreements. Available at SSRN: https://ssrn.com/abstract=908662

Juan-Carlos Altamirano-Cabrera (Contact Author)

Wageningen University - Social Sciences, Environmental Economics and Natural Resources Group ( email )

De Leeuwenborch
Hollandseweg 1
6706 KN Wageningen
Netherlands

Michael Finus

University of Stirling ( email )

Stirling, Scotland FK9 4LA
United Kingdom

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