Simulation of tradable CO 2 emission permits with the New Earth 21 Model

The theoretical potential of tradable CO2 emission permits has attracted much interest as a means of achieving the efficiency and equity of CO2 control. This paper presents a simulation of the global market of CO2 emission permits with the New Earth 21 Model. The analysis focuses on the initial allocation of CO2 emission permits, the effects of transaction costs and the impact of those regions out of the market. Major findings are as follows: 1) A significant amount of income transfer is realised from developed regions to developing regions with the initial allocation in proportion to each regional population; 2) As transaction costs increase, the efficiency of the market decreases; and 3) North America and China play a key role in the success of the tradable permits market. The results suggest the use of joint implementation as a realistic means of realising tradable CO2 emission permits.