Estimating the price of tradable permits for greenhouse gas emissions in 2008–12

Many attempts have been made recently to predict the prices of tradable permits for greenhouse gas (GHG) emissions in the first commitment period of the Kyoto Protocol (2008–12). In this paper, we attempt to refine these price estimates based on (i) the results of economic models and identification of factors which influence prices but are not fully reflected in the models, (ii) lessons from price forecasting experience in the US sulfur dioxide market, and (iii) current price data from the nascent international market for GHG permits. We expect GHG permit prices to be at the lower end of the broad spectrum of existing predictions. This implies, among other things, that resource transfers to developing countries associated with emissions trading will be relatively low. Nevertheless, even a modest price will have a significant influence on the decisions of consumers and investors in energy markets around the world.