GHG Emission Liability
A three-perspective view of greenhouse gas emission responsibilities in New Zealand[1]
AbstractWhile responsibility for the environmental impacts of production has been commonly assigned to producers, production is driven by consumer demand, and it is valid to question whether impacts should instead be assigned to consumers. However, in each of these approaches producers and consumers either bear the full burden of responsibility or none at all. An example of this is the Kyoto Protocol, where all greenhouse gas emissions areassigned to the producer and no consideration is given to where goods are finally consumed.Rather than taking the conventional producer or consumer responsibility approach, a third perspective is possible in which responsibility is shared. We use input–output analysis to apply all three of these responsibility perspectives to New Zealand's domestic greenhouse gas emissions. Our main findings from the shared responsibility approach are that New Zealand producers are responsible for 44% of domestic emissions, New Zealand consumers take 28%, and 27% are exported. A shared responsibility approach appears to distribute the burden of responsibility and associated liability between parties more fairly,and is likely to be more widely acceptable than pure producer or consumer perspectives.
Unilateral regulation of bilateral trade in greenhouse gas emission permits[2]
Abstract This paper considers the coordination of domestic markets for tradable emission permits where countries determine their own emission reduction targets, using a two-country model. Linking such schemes is beneficial to both countries but may cause the exporting country to decrease its emission reduction target and export more permits. This in turn would not only reduce the costs for both countries as less emissions have to be reduced, but it also lowers the environmental benefits of the importing country.
One price instrument (tariff) and two quantity instruments (discount, quota) to prevent the exporting country from issuing more permits are examined. Each instrument restricts trade and alters the terms of trade for the two countries. The importing country (and regulator) prefers an import tariff and an import quota to a carbon discount. If the exporting country releases additional permits, the importing country should not try to keep total emissions constant, as that would be ineffective and maybe even counterproductive. Instead, the importing country should aim to keep the total import constant; this would impose costs on the exporting country that are independent of the policy instrument; an import quota would be the cheapest option for the importing country. An import quota would also stress the idea of supplementary of the flexible mechanism as it increases the share of emissions reduced domestically. Compliance and liability issues constrain the market further. However, both the importing and the exporting country would prefer that the permit seller is liable in case of non-compliance, as sellers' liability would less constrain the market.
The End-to-End Attribution Problem: From Emissions to Impacts[3]
AbstractWhen a damaging extreme meteorological event occurs, the question often arises as to whether that event was caused by anthropogenic greenhouse gas emissions. The question is more than academic, since people affected by the event will be interested in recurring damages if they find that someone is at fault. However, since this extreme event could have occurred by chance in an unperturbed climate, we are currently unable to properly respond to this question. A solution lies in recognising the similarity with the cause-effect issue in the epidemiological field. The approach there is to consider the changes in the risk of the event occurring as attributable, as against the occurrence of the event itself. Inherent in this approach is a recognition that knowledge of the change in risk as well as the amplitude of the forcing itself are uncertain. Consequently, the fraction of the risk attributable to the external forcing is a probabilistic quantity. Here we develop and demonstrate this methodology in the context of the climate change problem.
Liability for climate change[4]
Buyer liability and voluntary inspections in international greenhouse gas emissions trading: a laboratory study[5]
AbstractThis paper reports a preliminary laboratoryexperiment in which traders make investments toincrease the reliability of tradableinstruments that represent greenhouse gasemissions allowances. In one half of thesessions these investments are unobservable,while in the other half traders can invitecostless and accurate inspections that makereliability investments public. We implement abuyer liability rule, so that if emissionsreductions are unreliable (i.e., sellersdefault), the buyer of the allowances cannotredeem them to cover emissions. We find thatallowing inspections significantly increasesthe reliability investment rate and overallefficiency. Prices of uninspected allowancesusually trade at a substantial discount due tothe buyer liability rule, which provides astrong market incentive for sellers to investin reliability.
Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences[6]
AbstractThe European Commission (document COM (2001) 581) has recently presented a directive proposal to the European Parliament and Council in order to implement a greenhouse gas emission trading scheme. If this proposal survives the policy process, it will create the most ambitious trading system ever implemented. However, the legislative process is an opportunity for various interest groups to amend environmental policies, which as a result generally deviate further from what economic literature proposes. A close look at implemented emission trading schemes, stressing their discrepancies with economic literature requests, is thus useful to increase the chances of forthcoming emission trading schemes to go through the political process. We thus review ten emission trading systems, which are either implemented or at an advanced stage of the policy process. We draw attention to major points to be aware of when designing an emission trading system: sectoral and spatial coverage, permits allocation, temporal flexibility, trading organisation, monitoring, enforcement, compliance, and the harmonisation vs. subsidiarity issue. The aim is to evaluate how far experiences in emission trading move away from theory and why. We then provide some lessons and recommendations on how to implement a greenhouse gas emission trading program in Europe. We identify some pros of the Commission proposal (spatial and sectoral coverage, temporal flexibility, trading organisation, compliance rules), some potential drawbacks (allocation rules, monitoring and enforcement) and items on which further guidance is needed (monitoring and allocation rules). Lastly, the European Commission should devote prominent attention to the US NOX Ozone Transport Commission budget program, as the only example of integration between the federal and state levels.
The liability rules under international GHG emissions trading[7]
Abstract Article 17 of the Kyoto Protocol authorizes emissions trading, but the rules governing emissions trading have been deferred to subsequent conferences. In designing and implementing an international greenhouse gas (GHG) emissions trading scheme, assigning liability rules has been considered to be one of the most challenging issues. In general, a seller-beware liability works well in a strong enforcement environment. In the Kyoto Protocol, however, it may not always work. By contrast, a buyer-beware liability could be an effective deterrent to non-compliance, but the costs of imposing it are expected to be very high. To strike a middle ground, we suggest a combination of preventive measures with strong but feasible end-of-period punishments to ensure compliance with the Kyoto emissions commitments. Such measures aim to maximize efficiency gains from emissions trading and at the same time, to minimize over-selling risks.
Equity and greenhouse gas responsibility[8]
International greenhouse gas emissions trading: who should be held liable for the non-compliance by sellers?[9]
Abstract Article 17 of the Kyoto Protocol authorizes emissions trading, but the rules governing emissions trading have been deferred to subsequent conferences. In designing and implementing an international greenhouse gas (GHG) emissions trading scheme, assigning liability has been considered to be one of the most challenging issues. This article discusses a variety of the rules for accountability under international GHG emissions trading. It indicates that a ‘buyer beware’ liability is effective only to the extent that it puts additional pressure on sellers to comply with their commitments because after all sellers exercise great, if not complete, control over whether or not they comply with their commitments. Because putting such a pressure on sellers to develop effective compliance systems is not without costs to buyers, a ‘buyer beware’ liability should thus be imposed only in the case where non-compliance of sellers is virtually certain to occur. Moreover, in determining the optimal combination of these not-mutually-exclusive rules for accountability that are discussed in the article, the marginal benefits of adding one rule needs to be weighted against the increased costs of doing so.
Enforcing Compliance: The Allocation of Liability in International GHG Emissions Trading and the Clean Development Mechanism[10]
AbstractThe possibility of international trade in credits for greenhouse gas (GHG) emission reductions is a key “flexibility mechanism” built into the December 1997 Kyoto Protocol for international GHG reduction. The Protocol allows ntities in Annex I countries (the industrialized countries agreeing to cap their total emissions) to trade emission reductions. Through the “Clean Development Mechanism” (CDM), investors in Annex I countries also can secure GHG reduction credits for emission-reducing activities in non-Annex I developing countries that have not accepted national emission caps. For these forms of international emissions trading to be seen as credible forms of real emissions reductions, legal responsibility, or liability, must be assigned for the failure of promised emission reductions embodied in the credits to materialize. While a well-functioning compliance system is crucial for the integrity of trading, however, excessive restrictions on trading to enforce responsibility could stifle emission credit markets and raise international compliance costs to unacceptable levels. The desirable allocation of liability trades off these two concerns. Liability for the “quality” of an emission reduction credit when created could rest with buyer, seller, or both parties; it also could stay with whoever originally is assigned the liability, or the liability could be transferred as credits are resold. A very high level of compliance by sellers could always be ensured by “gold plating” credits or permits. Before credits can be sold we could require they be certified by an independent agent. Buyers and sellers would then have to decide how often to bring in the certifiers, trading off the costs of more frequent quality control against the advantage of a more continuous flow of certified credits or permits. Since this approach is likely to be quite expensive, either because of certification costs or illiquidity, we focus in this paper on systems that allow trading of emission permits or credits prior to certification with post-trade liability rules that aim to enhance the credibility of trading. Designing good compliance systems would be easy if everybody – traders and governments – had lots of information about the emission-reducing activities of different entities and there were strong legal sanctions within every participating country for nonperformance. In practice, information is scarce and not evenly shared, and both domestic and international enforcement mechanisms are limited in what they can accomplish. Starting with these two points, we first consider some of the general institutional background for international emissions trading. We then consider the assignment of liability in an international GHG trading system for the Annex I developed countries, focusing on the assignment of liability for “bad” emission permits when the seller country is not in compliance with its Kyoto targets known as “assigned amounts.” We turn then to address issues of credibility and liability in the context of CDM joint ventures.
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References
- ↑ R. Andrew and V. Forgie, “A three-perspective view of greenhouse gas emission responsibilities in New Zealand,” Ecological Economics, vol. 68, no. 1–2, pp. 194–204, Dec. 2008.
- ↑ K. Rehdanz and R. S. J. Tol, “Unilateral regulation of bilateral trade in greenhouse gas emission permits,” Ecological Economics, vol. 54, no. 4, pp. 397–416, Sep. 2005.
- ↑ D. A. Stone and M. R. Allen, “The End-to-End Attribution Problem: From Emissions to Impacts,” Climatic Change, vol. 71, no. 3, pp. 303–318, Aug. 2005.
- ↑ M. Allen, “Liability for climate change,” Nature, vol. 421, no. 6926, pp. 891–892, 2003.
- ↑ T. N. Cason, “Buyer liability and voluntary inspections in international greenhouse gas emissions trading: a laboratory study,” Environmental and Resource Economics, vol. 25, no. 1, pp. 101–127, 2003.
- ↑ C. Boemare and P. Quirion, “Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences,” Ecological Economics, vol. 43, no. 2, pp. 213–230, 2002.
- ↑ Z. Zhang, “The liability rules under international GHG emissions trading,” Energy Policy, vol. 29, no. 7, pp. 501–508, 2001.
- ↑ P. Baer, J. Harte, B. Haya, A. V. Herzog, J. Holdren, N. E. Hultman, D. M. Kammen, R. B. Norgaard, and L. Raymond, “Equity and greenhouse gas responsibility,” Science, vol. 289, no. 5488, p. 2287, 2000.
- ↑ Z. X. Zhang, “International greenhouse gas emissions trading: who should be held liable for the non-compliance by sellers?,” Ecological Economics, vol. 31, no. 3, pp. 323–329, 1999.
- ↑ S. Kerr, “Enforcing Compliance: The Allocation of Liability in International GHG Emissions Trading and the Clean Development Mechanism,” Resources for the Future Climate Issue Brief, vol. 15, 1998.