An analysis of alternative emission trading strategies of parties to the Kyoto Protocol

This article analyzes the cost of Canada, Japan, and Western Europe of complying with the Kyoto Protocol and the possible revenues of Eastern Europe, Russia, and Ukraine in a set of scenarios, each of which reflecting one particular pattern of permit trading. One main focus was to investigate how a working Clean Development Mechanism (CDM) scheme may influence the market power of a possible cartel of "hot air" sellers. The results show that the compliance costs are significantly reduced with the availability of CDM and that these cost depend only weakly on the restrictions of the "hot air" supply. The greenhouse gas emission reductions of the trading scenarios are about 40% less than in a domestic measures only scenario. The analysis uses a modified version of the well-known MERGE model (Manne and Richels, 2004).