The dynamics of linking permit markets

Arbeitspapier

This paper presents a novel benefit of linking emission permit markets. We let countries issue permits non-cooperatively, and with endogenous technology we show there are gains from permit trade even if countries are identical. Linking the permit markets of different countries will turn permit issuance into intertemporal strategic complements. The intertemporal strategic complementarity arises because issuing fewer permits today increases investments in green energy capacity in all permit market countries, and countries with a higher green energy capacity will respond by issuing fewer permits in the future. Hence, each country faces incentives to withhold emission permits when permit markets are linked. Even though countries cannot commit to reducing their own emissions, or punish other countries that do not, the outcome is reduced emissions, higher investments, and increased welfare, compared to a benchmark with only domestic permit trade. We also show that permit market linking can arise as an equilibrium outcome.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 7548

Klassifikation und Themen

• Klassifikation: Wirtschaft ; International Institutional Arrangements ; Climate; Natural Disasters and Their Management; Global Warming
• Thema: international agreements ; permit markets ; dynamic games ; green technology investments

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Holtsmark, Katinka Kristine ; Midttømme, Kristoffer
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2019

Weitere Informationen

• Handle: http://hdl.handle.net/10419/198908
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ