Economic growth and emission reductiona comparative analysis with and without emission rights banking between periods
- Jiménez Herrero, María Jesús
- Cabo García, Francisco José
- Martín Herrán, Guiomar
- Fernández Arufe, Josefa E. (dir.)
- Rojo García, José Luis (dir.)
- Moyano Pesquera, Pedro Benito (coord.)
- Somarriba Arechavala, Noelia (coord.)
Publisher: Asociación Española de Economía Aplicada, ASEPELT
ISBN: 84-96477-93-2
Year of publication: 2007
Volume Title: Área VII : Métodos cuantitativos
Volume: 7
Pages: 330-349
Congress: ASEPELT España. Reunión anual (21. 2007. Valladolid)
Type: Conference paper
Abstract
We set out a model of endogenous economic growth with emission trading. A firm located in a signatory country of the Kyoto Protocol has to determine optimal investment policies for physical and abatement capital. Both types of capital are essential for production, while the latter also reduces the ratio of emissions per unit of output. The country has access to emission rights trading so as to reach growth attaining its emissions reduction compromise. In the international emission trading market proposed by the Kyoto Protocol, the banking of emission rights from one period to another is not allowed, so the value emission rights at the end of each period is null. The main purpose of this paper is to analyze the effects of allowing emission rights banking between periods. To that end we develop a numerical algorithm to compute the optimal behaviour of the firms under two scenarios: with and without emission rights banking between periods. We compare these two scenarios in terms of economic growth and environmental achievements. A sensitivity analysis to variations of the different parameters of the model is carried out in both scenarios.