New Horizons in Environmental Economics series
Chapter 11: Bargaining over a Uniform Emission Reduction Quota and a Uniform Emission Tax
INTRODUCTION 11.1 In Section 10.5 we discussed how an auction of emission reductions could work. An auctioneer calls up diﬀerent exchange rates which deﬁne the relation of emission reductions of countries and asks the participants for oﬀers. The auction equilibrium was deﬁned as that exchange rate where oﬀers match. Thus, the bargaining market clears via an adjustment of ‘prices’. In reality, however, a diﬀerent bargaining rule can frequently be observed at the pre-stage leading to an IEA. The exchange rate is ﬁxed through an institutional framework and countries agree on the lowest bid, that is, on the lowest common denominator. For instance, potential signatories to an IEA frequently negotiate on a uniform emission reduction quota, which implies that countries have to reduce emissions by the same percentage compared to some base year. Typically that country which proposes the lowest reduction will be the ‘bottleneck’ in the negotiations and deﬁnes the terms of the agreement. The list of examples of uniform emission quotas is long and includes the Montreal Protocol on Substances that Deplete the Ozone Layer, which speciﬁed an emission reduction of CFCs and halons by 20 percent based on 1986 emission levels to be accomplished by 1998.1 Another example is the Helsinki Protocol, which suggested a reduction of sulfur dioxide from 1980 levels by 30 percent by 1993. Moreover, the Soﬁa Protocol Concerning the Control of Emissions of Nitrogen Oxides or Their Transboundary Fluxes signed in 1988 called on countries...
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