Instruments for Climate Policy

Instruments for Climate Policy

Limited versus Unlimited Flexibility

New Horizons in Environmental Economics series

Edited by Johan Albrecht

Instruments for Climate Policy focuses on economic and political aspects related to the recent proposals and the debate on limits in flexibility, and discusses EU and US perspectives on climate policy instruments and strategies. This is followed by chapters on economic efficiency and the use of flexible instruments as well as contributions to the debate on ‘when flexibility’, on the arguments behind the EU ceilings proposal and on voluntary approaches to climate policy. One of the main conclusions reached with respect to proposals for limiting flexibility is the need to evaluate simultaneously their economic, ecological and international political consequences. The authors include both important policymakers and leading academics in the area.

Chapter 11: On the dynamic efficiency and environmental integrity of GHG tradable quaotas

Khalil Helioui

Subjects: economics and finance, environmental economics, environment, climate change, environmental economics


11. On the dynamic efficiency and environmental integrity of GHG tradable quotas Khalil Helioui 1. INTRODUCTION In December 1997, Annex B countries agreed in Kyoto on the principle of quantified GHG emission caps. First commitments have been decided for the period 2008–12. Post-2012 quotas should be set before 2005.1 Parties to the Protocol also agreed on the principle of emissions trading. Despite the US withdrawal and controversies about its modalities, rules and guidelines, the Green House Gases Tradable Quota System (GHG–TQS) remains at the heart of the process of international GHG control. Compared to other alternatives – such as uncoordinated national policies and measures or an international carbon tax – tradable quotas are supposed to have the advantage of costeffectiveness and/or flexibility in the allocation of abatement burden. Moreover, the recent Marrakesh accords cooled operational controversies with a compromise reaffirming the principle of environmental integrity while adopting rather moderate enforement procedures. However, some unresolved critical issues about the modality of implementation of tradable quotas could be raised again in the future under the pressure of real outcomes. One of these issues is whether or not it is necessary to limit emissions trading.2 The EU and the USA have opposed views on this question, as testified by their diverging interpretation of Article 17 of the Protocol. This article states that emissions trading should be ‘supplemental’ to domestic actions, without determining the meaning of the term ‘supplemental’. On the one hand, the Europeans called for a concrete and...

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