Supplementarity in the European carbon emission market

Abstract

In this paper we investigate emission trading within the EU and, more specifically, some proposals to impose ceilings on emission trading. We compare different proposals put forward by the EU negotiators at the international level in the framework of the Kyoto Protocol and apply them to intra-EU greenhouse gasses emission trading. It turns out that these proposals imply important differences in the distribution of emission trading gains among the EU member states. A public choice approach is used to investigate which EU countries would benefit from imposing import and/or export ceilings. We try to interpret the ceiling proposals as the outcome of a voting game among the EU member states on uniform ceiling rates. The simulations suggest that the most likely ceiling proposals match closely the interests of the big EU member states France, the UK and in particular Germany. The simulation model we are using consists of a set of marginal cost of carbon emission abatement functions calibrated to PRIMES simulation results reported by Capros and Mantzos (1999).emission trading; marginal abatement cost curves; supplementarity