Keywords: climate change, emissions trading, FCCC, flexibility mechanisms, greenhouse gases, Kyoto Protocol
Quantifying flexibility in combating climate change: modelling the implications of flexibility mechanisms in the climate change negotiations
With the "International Trading of Emission Allowances" (ITEA) model, we have analysed the flexibility mechanisms provided for in the Kyoto Protocol. Three main mechanisms of flexibility are analysed differentiation of initial commitments, multiple sources, and locational flexibility (trading). A differentiation of commitments could help the evolution of commitments, especially with a trading regime, which could create some income. Multiple sources give a large pool of cheaper abatement options from the non-CO2 gases, and costs are reduced substantially. Finally, a trading regime would make available even more cheap abatement options, mainly in the economies in transition (EITs). This regime would provide income support for the EITs, helping them to speed up their transition. The combined mechanisms reduce dramatically the costs for the compliance with the protocol for the whole of Annex I; they fall to zero in some cases. Two other main findings deal with the EU and the EITs. Internal trading would ease the debate on the internal distribution of commitments within the EU under the bubble provision, reducing costs significantly. The allocations in the protocol for the EITs probably create a huge excess - "hot air" - which could seriously harm the agreement if it is not dealt with. Excluding the hot air will increase costs for the quota importers, and it will also slightly reduce income for the relevant EITs, but this is offset by a rising price, which also benefits other EITs.