Market system to curtail emission magnitudes evolved from electricity generation

Abstract

The recent resolution of the seventh Conference of the Parties to the Climate Convention (COP7) indicates that if a country is required to comply with the pollution limit, part of the required reduction in levels of emission will have to be achieved domestically. With this status quo, policy practitioners may opt to design emission level standards along with the provision of allowing access to the international permit market that may facilitate carbon offset crediting to the country. In policy formulation cognate to electricity generation through coal combustion, it is suggested that end-users will pay emission compliance costs in terms of the price of electricity usage and the companies will offer a rebate on reduction to those who curtail the level of usage of electricity. Under the scheme proposed, the generating company(s) will face the consequences if it fails to comply to domestic emission standards. In practice, the proposed method can ensure ‘Pareto efficiency’ and exhibit ‘Pareto improvement’ in two-party cases where both parties have joint interest in profit maximization, but they may have dichotomy in their activities. In dealing with domestic greenhouse gas issues, the proposal becomes appealing to parties for reducing the level of emissions. Moreover, it may produce a greater degree of abatement of CO2 emissions over the levels of abatement resulting from policies of consumer or producer liability assignments.