Carbon trading with imperfectly observable emissions

Godal, O., Ermoliev, Y., Klaassen, G., & Obersteiner, M. ORCID: (2003). Carbon trading with imperfectly observable emissions. Environmental and Resource Economics 25 (2) 151-169. 10.1023/A:1023914324084.

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The Kyoto Protocol foresees emission trading but does not yet specify verification of (uncertain) emissions. This paper analyses a setting in which parties can meet their emission targets by reducing emissions, by investing in monitoring (reducing uncertainty of emissions) or by (bilaterally) trading permits. We derive the optimality conditions and carry out various numerical simulations. Our applications suggest that including uncertainty could increase compliance costs for the USA, Japan and the European Union. Central Europe and the Former Soviet Union might be able to gain from trading due to higher permit prices. Emissions trading could also lower aggregate uncertainty on emissions.

Item Type: Article
Uncontrolled Keywords: carbon; emissions trading; monitoring; simulation; uncertainty
Research Programs: Transboundary Air Pollution (TAP)
Bibliographic Reference: Environmental and Resource Economics; 25(2):151-169 [2003]
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 02:15
Last Modified: 27 Aug 2021 17:18

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