Price Disclosure, Marginal Abatement Cost Information and Market Power in a Bilateral GHG Emissions Trading Experiment

Abstract

Against the global warming, the discussion on how to control the total amount of greenhouse gases (GHG’s) has started among countries in the late of 1980’s. At the third session of the Conference of the Parties (COP3) to the United Nations Framework Convention on Climate Change (UNFCCC) at Kyoto in December, 1997, the Kyoto Protocol was adopted, which was the first agreement on the quantified GHG emission limitation. It assigns each Annex B country (an advanced country or a country undergoing the process of transition to market economy) the quantity she should comply with, and calls for these countries to reduce their overall emissions by at least five percent below the 1990 level in the commitment period 2008 to 2012. To assist the countries in achieving compliance, the Protocol authorizes three major mechanisms, that is, emissions trading, joint implementation, and the Clean Development Mechanism. The details of mechanisms, however, remained to be elaborated. Designing these mechanisms is an urgent task since they should start working by 2008 at the latest. Among them, this paper focuses on designing desirable institutions for GHG emissions trading through the use of experimental economics.¹