Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83109
Authors: 
Brandt, Urs Steiner
Svendsen, Gert Tinggaard
Year of Publication: 
2003
Series/Report no.: 
Working Paper, Department of Environmental and Business Economics, University of Southern Denmark 42
Abstract: 
The purpose of this paper is to analyse whether the presence of Hot Air trading jeopardizes the environmental target of an international environmental agree-ment. We argue that Hot Air can be used as an implicit side-payment mecha-nism to actually bring about higher environmental protection compared to the situation without the trade option. We point to the existence of a fundamental trade-off between costs of compliance and the creation of dynamic incentives to develop cheaper reduction technologies. Implicit side-payments, in terms of Hot Air provision, may be needed in order to establish a compromise between these opposing demands. We identify the shortcomings and benefits of allowing fully flexible permit trading including the allocation rule of grandfathering.
Subjects: 
Hot Air
Global GHG trade
Kyoto protocol
Grandfathering
Cost issue
EU
US
JEL: 
Q28
H2
H4
Document Type: 
Working Paper
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