A Two-level Dynamic Game of Carbon Emissions Trading Between Between Russia, China, and Annex B Countries

This paper proposes a computable dynamic game model of the strategic competition between Russia and developing countries (DCs), mainly represented by China, on the in-ternational market of emissions permits created by the Kyoto protocol. The model uses a formulation of a demand function for permits from Annex B countries and of marginal abatement costs (MAC) in Russia and China provided by two detailed models. GEMINI-E3 is a computable general equilibrium model that provides the data to estimate Annex B de-mand for permits and MACs in Russia. POLES is a partial equilibrium model that is used to obtain MAC curves for China. The competitive scenario is compared with a monopoly situation where only Russia is allowed to play strategically. The impact of allowing DCs to intervene on the international emissions trading market is thus assessed