Carbon quota price and CDM potentials after Marrakesh

The Kyoto Protocol sets quantified GHG emission reduction commitments for Annex I Parties. But their emission reduction requirements related to BAU projections, one of the key factors to effect on future carbon market, are uncertain. Both the decisions made in Bonn and Marrakesh would have further consequences for how the future carbon market will take shape. This paper, with application of the carbon emission reduction trading model, evaluates future carbon quota price and Clean Development Mechanism (CDM) potentials under different BAU projections, and does sensitivity analysis on carry-over of AAUs, CERs and ERUs, implementation rate, transaction cost, holding of CERs in Non-Annex I Parties, etc. to assess the impacts of relevant decisions of COP6-bis and COP7 on the carbon market. Under different BAU projections, future carbon quota price and CDM potentials could vary widely. Carry over of AAUs, CERs, ERUs, and holding of CERs in Non-Annex I Parties could raise both quota price and total CDM potentials considerably. Implementation rate could have big impacts on both carbon quota price and CDM potentials, especially for the cases formerly with relatively high CDM potentials, and it could also change the regional distribution of CDM potentials. Transaction cost's effect on the carbon market would be comparatively low, but would become unignorable in the market whose quota price is low. It would lead to a downward trend in price while upward in CDM potentials when increasing the implementation rate or lowering transaction cost. Withdrawal of USA would dramatically shrink carbon price and credit amount, and large numbers of hot air and sink credits would further greatly crowd out the CDM projects; carry over of AAUs, CERs and ERUs, holding of CERs in Non-Annex I Parties, prompt start of CDM projects, etc., would, however, enhance the total CDM credits to ensure more investment and technology flow to developing countries to promote their sustainable development. (C) 2002 Elsevier Science Ltd. All rights reserved.