1. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 1 A dynamic game of timing of emission rights supply on an international emissions trading system

2. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 2 Consequences of a global climate constraint Limit radiative forcing to 3.5 or 4 W/m 2

3. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 3

4. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 4 How to split the safety global emissions budget among the different groups of nations ?

5. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 5 Groups of Countries

6. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 6 Groups of Countries Population GDP GHG Emissions Population

7. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 7 Different splits

8. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 8 Budget Sharing Game Equilibrium under constraints ( quotas are the strategic variables )

9. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 9 Game with constraints One considers the time horizon 2005-2050 and one identifies the total amount of GHG emissions, at world level, that is compatible with maintaining the SAT increase below 2ºC. –This global budget has been evaluated to be 519 GtC equiv. One distributes this global amount among the different parties in an international agreement, using equity rules. For a given split of the total GHG emissions allowance, one solves a dynamic non-cooperative game –decision variables : schedules of GHG quotas, –payoffs : welfare gains (or losses), –while respecting the allocated cumulative emissions budget, and after implementing an international emissions trading scheme.

10. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 10 GEMINI-E3 A CGEM (GEMINI-E3) is now used to simulate the economic outcome of the equilibrium solution in the dynamic game of quotas; An oracle-based method is used to solve the variational inequality which characterizes an equilibrium (kind of « deep computing »).

11. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 11

12. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 12 Carbon prices

13. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 13 Surplus* * Sum of discounted surplus divided by sum of discounted consumption

14. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 14 Equalize Surplus losses Find an allocation that leads to a same loss of surplus for each regions in % HFC

15. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 15 Eq. Surplus Allocation Eq. Surplus

16. Conference on the International Dimensions of Climate Policies; 21 – 23 January 2009, Bern, Switzerland TOCSIN-EU FP6 Project www.ordecsys.com 16 Conclusion We have modelled the forthcoming negotiations as a sharing of an emissions budget followed by a game of timing for the quotas in each group of nations; The approach conforts a C&C like approach and ensures that the agreement will be sustainable (Nash equilibrium under the budget sharing constraints).