Integrated model for robust emission trading under uncertainties: cost-effectiveness and environmental safety

Ermoliev Y, Ermolieva T, Jonas M, Obersteiner M, Wagner F, & Winiwarter W (2015). Integrated model for robust emission trading under uncertainties: cost-effectiveness and environmental safety. Technological Forecasting and Social Change 98: 234-244. DOI:10.1016/j.techfore.2015.01.003.

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Abstract

Emission trading scheme was devised to lower the cost of achieving greenhouse gas emission reductions emissions are reduced where it is cheapest and emission certificates are then traded to meet the nomial targets for each participant. However, carbon markets, like other commodity markets, are volatile. Thy react to stochastic "disequilibrium" spot prices, which may be affected by inadequate policies, speculations and bubbles. The market-based emission trading, therefore, does not necessarily minimize abatement cots and achieve emission reduction goals. We introduce a basic stochastic trading model allowing analysisof the robustness of emission reduction policies under irreversibility, asymmetric information and othermultiple anthropogenic and natural uncertainties. We illustrate functioning of the robust market with numerica results involving such countries as US, Australia, Canada, Japan, EU27, Russia, Ukraine, China. In particular we analyze if knowledge about uncertainties may affect portfolios of technological and trade policies an how uncertainty characteristics may influence market prices and change the market structure.

Item Type: Article
Uncontrolled Keywords: robust emission trading; uncertainties; irreversibility; environmental safety; cost-effectiveness; core solution; two-stage stochastic optimization
Research Programs: Advanced Systems Analysis (ASA)
Ecosystems Services and Management (ESM)
Mitigation of Air Pollution (MAG)
Air Quality & Greenhouse Gases (AIR)
Bibliographic Reference: Technological Forecasting and Social Change; 98:234-244 [September 2015] (Published online 31 January 2015)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:53
Last Modified: 04 Apr 2016 10:17
URI: http://pure.iiasa.ac.at/11386

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