Financial instruments for global carbon emission reduction

A novel decentralized emission trading process, developed by the Advanced Systems Analysis (ASA) Program, started to undergo review in 2013.

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Charcoal briquettes

For many years ASA has been working with Ecosystems Services and Management (ESM) and Mitigation of Air Pollution and Greenhouse Gases (MAG) on the design of an optimal feasible carbon trading scheme.

A novel decentralized emission trading process organized in a sequential bilaterally interactive fashion, which takes into account both long-term economic and environmental effects under uncertainty, including asymmetric access of players to information, was developed [1].

Scientists showed that the proposed sequential trading process converges to a steady state in which trading parties do not have incentives to leave the trading coalition. If a new party joins the trading process, parties from the initial coalition are able to proceed with the trading process and reduce their costs further.

Simulation of the carbon trade between ten major world regions and countries revealed that explicit treatment of uncertainty may significantly change the results of trade turning permit-sellers into permit-buyers [2].

The approach was extended to the case of agents exposed to risks affecting production and “quality” (safety) of tradable emissions; they show that uncertainties dramatically restrict cost-effectiveness and environmental safety of the price-based trading [3]. There was also a study of review and compare methods for comparison of uncertain inventories in the context of compliance checking classifying them into two groups: probabilistic-and fuzzy-based [4].

References

[1] Ermolieva T, Ermoliev Y, Jonas M, Obersteiner O, Wagner F, Winiwarter W (under review). Integrated modeling of robust emission trading market under uncertainties.Proceedings of the IIASA Conference – 2012 “Worlds within Reach. From Science to Policy”.
[2] Ermolieva T, Ermoliev Y, Jonas M, Obersteiner M, Wagner F, Winiwarter W (2013). Uncertainty, cost-effectiveness and environmental safety of robust carbon trading: Integrated approach. Climatic Change (Published online 22 August 2013).
[3] Ermolieva T, Ermoliev Y, Jonas M, Obersteiner M, Wagner F, Winiwarter W (2013). Uncertainty, cost-effectiveness and environmental safety of robust carbon trading: integrated approach. IIASA Interim Report IR-13-003.
[4] Hryniewicz O, Nahorski Z, Verstraete J, Horabik J, Jonas M (accepted). Simulation of an uncertain emission market for greenhouse gases using agent-based methods. Climatic Change.


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Last edited: 21 May 2014

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