Carmen Bunzl - Universidad Pontificia Comillas

Chapter 2. Options for future climate change architectures 49
On the other hand, it reduces certainty on the global emission level, known
only within a certain range; and is difficult to set, as two targets are to be
defined.
Some developing countries may be open to discuss such a target.
Industrialized countries might welcome dual targets if they mean developing
country involvement and increasing participation.
Dual targets may be applied when uncertainty of economic development
prevents setting absolute binding targets.
2.1.1.5 Price cap
The price cap is a hybrid between a tax and emission trading. After the initial
allocation of emission allowances, and unlimited number of additional emission
rights is provided at a given price (Pizer, 2002; Jacoby and Ellerman, 2004;
Philibert, 2004).
It provides more flexibility to countries so that high costs are avoided if
emissions development – because of economic development, energy price
changes, technology development - is different than expected. It would mean
relatively minor adjustments to the existing Kyoto system. The price cap also
reduces economic uncertainties because emission reductions would only take
place if they are cheaper than the price cap.
To be effective the price cap should be high enough, this could make it too
costly for specific countries. Price caps could be available for all or only for a
subset of countries in the system, in this case a rule is required to prevent
countries using the price cap to be net sellers – overselling. If applied only to a
subset of countries, no-lose targets and dual targets could be chosen as an
alternative.
Most developing countries would probably not accept such a target. The
price cap could possibly help some countries such as USA or Japan to take on a
Escuela Técnica Superior de Ingeniería ICAI Carmen Bunzl Boulet Junio 2008