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Linking treaties to expand the market. Kristian Tangen and Henrik Hasselknippe A post-2012 Architecture Bonn June 12 2003. Merits and shortcomings of cap-and-trade. Merits Cost effectivness and price signals Large reduction at low prices TEETH! Shortcomings

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linking treaties to expand the market

Linking treaties to expand the market

Kristian Tangen and Henrik Hasselknippe

A post-2012 Architecture

Bonn June 12 2003

merits and shortcomings of cap and trade
Merits and shortcomings of cap-and-trade
  • Merits
    • Cost effectivness and price signals
    • Large reduction at low prices
    • TEETH!
  • Shortcomings
    • High prices: Politically impossible
    • Need other instruments for technological change
  • Create incentives for cap-and-trade
  • Develop supplementing instruments
challenges solutions
Challenges & Solutions
  • Negotiations of several treaties
    • GOOD: Fewer negotiation parties
    • BAD: Fewer trade-offs, package deals
  • Challenge
    • Weaker incentives for cap-and-trade?
  • Solution?
    • Linked multi-treaty system
    • Differentiated rights and duties
    • Graduation thresholds
linking rights and duties
Linking rights and duties

UNFCCC/KP/CDM

Other treaties

-Technology

-Development

Reporting

Treaty

Trading

Treaty

Support

Treaty

Rights: Only parties negotiate

reporting treaty
Reporting Treaty
  • Reporting: first step for effective policies
  • Rights
    • Gateway to Support and Trading treaties
  • Duties
    • Comply with reporting requirements
  • Reporting requirements
    • Kyoto-style reporting (art. 5,7 & 8)
    • For sectors or whole economy
    • Depends on developing level
    • E.g. only CO2 from energy
support treaty
Below threshold

Duties

Compliance with Reporting Treaty

Rights

Participation

Capacity building

Financial support

Above threshold

Duties

Compliance with Trading Treaty

Rights

Participation

Support Treaty
cap and trade treaty
Cap-and-trade Treaty
  • Duties
    • Caps for sectors, or the whole economy
    • Caps only sectors covered by Reporting Treaty
  • Rights
    • Full participation in emissions trading
    • Can be party to Support Treaty
    • Additional support for newcomers
slide8
Caps
  • To be set by negotiations between parties to the Trading Treaty
  • Possibility, one of many
    • Caps set as reduction from BAU
    • BAU has to be approved by review team
    • Lower reductions for newcomers
  • Example
    • Newcomers: -0.1% from BAU
    • Veterans: -2% p.a. from BAU
    • With various levels in between?
possible first steps
Possible first steps
  • Bottom-up processes
  • Trading countries (EU, Japan, Canada)
    • Should develop common currency
    • Discuss linking and future evolution
  • Reporting
    • Increase support for developing country reporting
  • Technology and innovation
    • Establish framework for international cooperation
  • Sensible also if KP does not enter into force
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