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Jaroslaw Grygolec A Ph.D. Candidate in Economics
University of Minnesota
Department of Economics
Last updated: January 20, 2008
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Guest Lecture
2007-2008
Market Mechanism to Curb Pollution:
European Union Emission Trading Scheme
This is a web site for the guest lecture given at 1101 Principles of Microeconomics courses at University of Minnesota. It shows with the example of European Union Emission Trading System (EU ETS), how the problem of over-pollution, or externality, can be best solved by market mechanism. EU ETS is the pioneering large-scale example of cap & trade system in carbon dioxide. Europe relies on EU ETS to meet %8 reductions in greenhouse gases emissions by 2012 under Kyoto Protocol. EU ETS exemplifies how market mechanism can be used to help solve the global warming problem by reducing emissions of greenhouse gases. At the higher level, the lecture is the introduction into the market design, both for new products and services, as well as in cases of the past market failures.
Visit European Climate Exchange (ECX) to check market price of CO2 emission allowance.
NYTimes Special Report on global warming
How are 2007 Nobel Prizes in Peace and Economics related?
The problem of global warming and how to prevent it receives more and more recognition. The Nobel Peace Prize 2007 was awarded to Intergovernmental Panel on Climate Change (IPCC) and Al Gore for work on climate change. IPCC and Al Gore were honored by Nobel Committee for work documenting and popularizing the issues related to global warming. In related development, the Nobel Prize in Economics 2007 was awarded to Prof. Leonid Hurwicz, Prof. Eric Maskin and Prof. Roger Myerson for creating mechanism design theory. The Royal Swedish Academy of Sciences highlighted: “Mechanism design theory, initiated by Leonid Hurwicz and further developed by Eric Maskin and Roger Myerson, (...) allows us to distinguish situations in which markets work well from those in which they do not. It has helped economists identify efficient trading mechanisms, regulation schemes and voting procedures.” In relation to global warming problem, the mechanism design theory is used to design trading mechanisms in carbon dioxide, so that markets can be used to stem the global warming problem by imposing the market price on carbon emissions.
Market Design Economics
Very Brief Introduction to Market Design:
Hal R. Varian, (Aug 29, 2002): "Avoiding the pitfalls when economics shifts from science to engineering," New York Times; New York, N. Y.
Examples of Market Designs:
Peter Coy, (Mar 6, 2006): "The Secret to Google`s Success. Its Innovative Auction System Has Ad Revenues Soaring," Business Week
(Apr 27, 2006): "In a League of its Own: America`s National Football League Offers a Business Lesson to Other Sports," The Economist
Luis Cabral, (2002): "The California Electricity Crisis," Japan and the World Economy, vol. 14, p. 335-339.
Economists Active in Market Design Economics:
Paul Milgrom, Preston R. McAfee, Robert Wilson, Alvin E. Roth
Disclaimer: The views and opinions expressed in this page are strictly those of the page author and have not been reviewed or approved by the University of Minnesota.