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The Role of Emissions Trading and Permit Allocation in International Climate Agreements with Asymmetric Countries

Author

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  • Jakob, Michael
  • Lessmann, Kai
  • Wildgrube, Theresa
Abstract
This paper presents a model of international environmental agreements in which cooperation between asymmetric countries can arise through pure self-interest. It demonstrates how emissions trading creates economic surplus by exploiting asymmetries. This surplus can be distributed via the appropriate allocation of reduction commitments, which ensures that membership in the agreement is compatible with countries' incentives to join. While this mechanism improves upon the business-as-usual outcome, it does not solve the underlying collective action problem wherein abatement falls short of the social optimum. We also show that countries' incentives to participate in a global climate agreement crucially depend on the permit allocation schemes, and that allocation schemes that ensure full participation in the global climate agreement might be at odds with fundamental equity considerations.

Suggested Citation

  • Jakob, Michael & Lessmann, Kai & Wildgrube, Theresa, 2014. "The Role of Emissions Trading and Permit Allocation in International Climate Agreements with Asymmetric Countries," Strategic Behavior and the Environment, now publishers, vol. 4(4), pages 361-392, December.
    • Handle: RePEc:now:jnlsbe:102.00000050
    DOI: 10.1561/102.00000050
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    Cited by:

    1. Jasper N. Meya & Ulrike Kornek & Kai Lessmann, 2018. "How empirical uncertainties influence the stability of climate coalitions," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 18(2), pages 175-198, April.

    More about this item

    Keywords

    International environmental agreements; Coalition game; Emissions trading; Allocation scheme;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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