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International Emission Trading Systems: Trade Level and Political Acceptability

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The Kyoto Protocol of December 1997 allows emission trade between countries that have committed themselves to an emission ceiling. This paper considers two schemes of emission trading: trade between governments and trade between emission sources. The two schemes are analyzed and the strengths and weaknesses of the two schemes are compared in a public choice setting which focuses on group size, selective incentives, entrepreneurship and lobbyism from industry. The result is threefold. First, the big countries (due to small group advantages) dominated the Kyoto negotiations. Second, at the international level, industrial lobbyism was non-significant. Only the 'fossil fuel lobby' played a role. Third, at the national level, one could expect strong political opposition from industry lobbies in case quotas are actually to be distributed at firm level. But trade among countries may benefit industry because governments will seek to favour them and gain competitive advantages, e.g. a country may buy permits for taxpayers' money and then redistribute permits to its industry. In this way redistribution takes place from non-organized to organized groups. So, taking political acceptability into account, the best 'second-best' solution is argued to be that of trade between governments.
Original languageEnglish
Publication statusPublished - 1999

    Research areas

  • Kyoto Protocol, Trade Level, Emission Trading, Political Economy, Group Size, Selective Incentives, Entrepreneurship, Lobbyism, Redistribution, Taxpayers

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ID: 32298088