LIMITING OVERSELLING IN INTERNATIONAL EMISSIONS TRADING II: 
Analysis of a Commitment Period Reserve at National and Global Levels

Working Paper No. 11

ISBN: 87-550-2951-5 (Internet: 87-550-2953-1)
ISSN: 1025-2258

Contents

Executive Summary

1. Introduction
1.1 International emissions trading creates the potential for greater non-compliance
1.2 Liability proposals seek to limit non-compliance due to overselling
1.3 A liability provision can be effective in limiting overselling
1.4 The commitment period reserve proposal
1.5 Purpose

2. Analytical Framework
2.1 Ratification of the Kyoto Protocol by all Annex B Parties is assumed
2.2 Annex B countries covered by the analysis
2.3 Data collected
2.4 The commitment period reserve
2.5 Treatment of ERUs, CERs and sequestration
2.6 Uncertainty of future emissions
2.7 Sensitivity scenario

3. Possible Non-compliance Due to Overselling and Temporarily Restricted Sales
3.1 Introduction
3.2 Possible non-compliance and temporarily restricted sales of surplus quota at the country level
3.3 Possible non-compliance due to overselling and temporarily restricted sales surplus quota for
     Annex B as a whole
3.4 The effect of alternative specifications of the commitment period reserve
3.5 The effect of alternative specifications of the commitment period reserve -- sensitivity scenario
3.6 Temporarily restricted sales of surplus quota at the country level for different specifications of
      the commitment period reserve
3.7 The impact on compliance costs
3.8 Summary

4. Liquidity
4.1 Definition
4.2 Data on liquidity for emissions trading markets
4.3 Liquidity in the international emissions trading market
4.4 International liquidity for domestic emissions trading programs
4.5 International liquidity for domestic emissions trading markets by country for
different specifications of the commitment period reserve

5. Conclusions
5.1 The potential for temporarily restricted sales of surplus quota and non-compliance for annex b
      countries as a whole
5.2 Temporarily restricted sales of quota surplus to the country's compliance needs
5.3 Impact on Annex II compliance costs
5.4 Liquidity
5.5 Liquidity in the international emissions trading market
5.6 International liquidity for domestic emissions trading programs
5.7 International liquidity for domestic emissions trading markets by
     country for different specifications of the commitment period reserve
5.8 Summary

References

Appendices:
A: Initial assigned amount and emissions for selected years by country
B: Detailed numerical results
C: Production of Class I ozone-depleting substances in the United States, 1989 through 1996