Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector

The allowance allocation under the European Emission trading schemes differs fundamentally from earlier cap and trade programs, like SO2 and NOx in the USA. Because of the iterative nature of negotiations of the overall budget, the allocation also has to follow an iterative process. If power generators anticipate that their current behaviour will affect future allowance allocation, then this can distort today’s decisions. Furthermore, the National Allocation Plans (NAPs) contain multiple provisions dealing with existing installations, what happens to allocation when they close, and allocations to new entrants. We provide a framework to assess the economic incentives and distortions that provisions in NAPs can have on market prices, operation and investment decisions. To this end, we use both analytic models to illustrate the incentives effects and results from numerical simulation runs that estimate the magnitude of impacts from different allocation rules

Toward a framework for implementation of climate change treaty through self-enforcing mechanisms

Global warming caused by accumulation of emissions of greenhouse gases (GHGs) is a public bad, addressing which requires collective action by all the countries of the world. Under the United Nations Convention on Climate Change (UNFCCC), most countries have negotiated the Kyoto Protocol for GHG emissions control to stabilize climate change. Several issues about the Protocol remain unresolved -- first, most of the significant countries are required to take a decision on whether or not to sign such a protocol, which has large-scale implications for their energy and industrial sectors and economic well-being; second, climate change mitigation is a public good entailing that all the countries would stand to gain due to mitigation action taken by a sub-group of one or more countries; and third, there exists no supra-national authority to enforce such a protocol for the individual sovereign nations. Thus, commitment to cooperate on an international agreement on climate change control remains tenuous. Formally, such a cooperative model is likely to be unstable. The paper discusses the pros and cons of the already proposed international cooperative mechanisms toward climate change mitigation and highlights the problem of information revelation, particularly related to the abatement issues. In this context, it attempts to outline a structure of a self-enforcing burden sharing mechanism for climate change mitigation in an incomplete information framework. The mechanism is an adoption of the well-known Vickrey-Clarke-Groves mechanism, widely used in mechanism design theory.Climate change negotiations; cooperative games; stable coalitions; self-enforcing mechanism

Enforcing International Law: Implications for an Effective Global Warming Regime

Syftet med denna studie var att undersöka den antibakteriella effekten hos ett polyestertyg med tunna invävda koppartrådar. Frågeställningen som skulle besvaras var ifall koppartyget hade en baktericid eller bakteristatisk effekt. Koppartyget är ännu i prototypstadie och om det visar sig ha antibakteriella egenskaper är det tänkt att användas inom klinisk verksamhet för att förhindra bakterietillväxt i sår och andra känsliga lokaler. Koppar är ett essentiellt spårämne, men har också antimikrobiella egenskaper som utövas genom ett brett spektra av mekanismer där skador på cellmembranet är en av de viktigare. Metoderna som användes för att inokulera bakterier på tyget var absorptionsmetoden, där en näringsbuljong innehållande Staphylococcus aureus ATCC 6538 pipetterades på tygproverna, och transfermetoden där tygproverna trycktes mot en agar som racklats med peptonsaltlösning innehållande S. aureus. Totalantalet viabla bakterier per tygprov beräknades efter kort kontakt (<1min) och inkubering (18-24 h vid 37±2°C) genom att räkna viable count. Resultaten efter inkubering visade signifikant skillnad i totalantal bakterier mellan koppartyget och negativ kontroll i tre av fyra försök. Kort kontakt visade tendens till viss antibakteriell effekt. Slutsatsen är att koppartyget skadade och dödade bakterier då de fick inkubera på tyget, medan fler försök behövs för att säkerställa effekten av kort kontakt med koppartyget. The purpose of this study was to test the antibacterial effect of thin copper treads woven into a polyester fabric. The investigation was done by inoculation of Staphylococcus aureus strain ATCC 6538 to the fabric and evaluation of the number of viable cells post exposure by viable count. The issue to be answered was whether the copper fabric had a bactericide or bacteriostatic effect? The fabric is still in prototype stage, and if proven to have antibacterial properties the aim is to use it to prevent bacterial growth in wounds and other vulnerable locations in clinical care. Copper is an essential trace element, but also has antimicrobial properties through a wide range of mechanisms where cell membrane damage is one of the more important. Methods used for inoculation was the absorption method, where a nutrient broth containing S. aureus was pipetted on to the fabric specimens, and the transfer method where the fabric specimens were pressed onto an agar plate that had previously been spread with peptone salt solution containing S. aureus. Total number of bacteria per fabric specimen after short contact (<1 min) and incubation (18-24 h at 37±2°C) was calculated. Incubation showed significant difference in total number of bacteria between the copper fabric and negative control in three of four tests. Short contact showed a tendency of antibacterial effect. The conclusion was that the copper fabric harmed and killed bacteria during incubation but that more records would be needed to be sure about the effects of short contact on bacteria

Impact of the allowance allocation on prices and efficiency

Successful cap and trade programs for SO2 and NOx in the US allocate allowances to large emitters based on a historic base line for a period of up to thirty years. National Allocation Plans in Europe allocate CO2 allowances in an iterative approach first for a three then for a five-year period. The potential updating of the base line creates perverse incentives for operation and investment. Some allowances are also reserved for new entrants further distorting the scheme. We use analytic models and numeric simulations for the UK power sector to illustrate and quantify how these effects contribute to an inflation of the allowance price while reducing utilisation and investment in efficient technologies. The inflated allowance prices are likely to increase the European allowance budget and emissions, e.g. through the Linking Directive. As a result opportunity costs of emitting CO2 are reduced relative to an efficient cap and trade program

Taking up the Slack: Lessons from a Cap-and-Trade Program in Chicago

The Emissions Reduction Market System (ERMS), an emissions-trading program for volatile organic materials (VOMs) in Chicago, Illinois, has been characterized by emissions significantly below the annual allocation of emission allowances, allowance prices much lower than predicted, limited trading, and emission allowances that expire unused. Essentially, it appears that a fundamental prerequisite for a tradable allowance program is missing—there is no scarcity of allowances. We evaluate a variety of hypotheses that may explain why the ERMS cap does not appear to be affecting abatement behavior and identify three that contributed to the lack of scarcity in the ERMS program: (1) a baseline process that inflated the cap; (2) hazardous air pollutant regulations that contributed to VOM reductions at some sources; and (3) numerous facility shutdowns. We conclude that the ERMS experience illustrates the inherent unpredictability of economic, regulatory, and other factors when setting an emissions target; a conclusion that resonates with the recent experience of the European Union Emissions Trading Scheme. This argues for gathering reliable emissions data, developing sophisticated emissions projections, and making transparent assumptions about the impacts of other policies and regulations during the program planning and design phase. However, even with all these attributes, it is still difficult to anticipate every possible outcome. Thus, it is desirable to have robust mechanisms to address the uncertainties of emissions-trading markets and to make midcourse corrections if necessary. Finally, we offer some comments on how to think about the results of ERMS versus a hypothetical command and control program that might have been designed to reach the same environmental outcome.emissions-trading, ERMS, European Union, climate change

Carbon market and climate negotiations.

In the wake of the Copenhagen Conference and the outstanding issue of shaping climate change mitigation for the period beyond that covered by the Kyoto protocol, this paper puts into context the various economic instruments available fot tackling climate change, and highlights the emergence, as a result of the framework of instruments provided by the Kyoto protocol, of carbon markets, (...)Economic instruments; Climate change; CO2; Carbon markets; Post-Kyoto;

Ethical Emissions Trading and the Law

The idea of permit trading in the United States can be traced as far back as the 1970s, but emissions trading has really only became a popular and exportable idea with the more recent demands that environmental protection acknowledge economic pressures through such ideas as sustainable development. Now the idea of emissions trading has caught on in South America, China and Europe as well. Yet in the eagerness of governments and industry to work out the technical details and legal mechanics of the emissions trading tool, insufficient attention has been paid to its underlying legal and ethical assumptions. In this article, it is emphasized that emissions trading is a part of compliance with environmental law, not a market alternative to compliance. The difference between the two greatly effects and is affected by theories of rights. As part of the scheme of rights and accompanying duties, the author questions whether an implicit right to pollute has been created through emissions trading, as exemplified by the comparison of the systems in the U.S., China and Europe