Abstract:
In 1999, Costa Rica's Vice President and Minister of Environment and Energy, Elizabeth Odio, had to decide whether to sell additional credits for greenhouse gas emissions reductions and, if so, at what price. Over the previous decade, the countries of the world had been negotiating a strategy to reduce emissions of carbon dioxide and other gases that were thought to contribute to global warming. The Kyoto Protocol included provisions to allow countries where emissions reductions were costly to meet their reduction targets by buying credits from countries where emissions reductions were cheaper. Costa Rica had been a pioneer in developing and selling emission reduction credits from converting cultivated fields and pastures back into forests, since the growth of the forest absorbed the carbon dioxide gases that contributed to global warming.
Learning Objective:
This case is designed for use in intermediate or applied microeconomics courses although it can be used in executive programs as well. It is intended primarily to illustrate the difficulties of providing public goods and the advantages and limitations of trading in pollution reduction programs. The case also raises interesting issues about the use of information on supply and demand to predict market prices and about strategies for auctioning goods.
