Fighting windmills? EU industrial interests and global climate negotiations

fossil fuel based energy production will face rising marginal costs as we as-
sumed in figure 1.

The switch point approach can also yield valuable insights into how different
policy options influence the timing of switch points. To illustrate this point, fig-
ure 2 shows a situation where only two possible types of energy production ex-
ist, coal fired and wind-based. Here we compare two policy options, a fully
flexible situation, where no restriction on international trade in permits exists,
and one where only domestic emission reductions are allowed. Coal^NT identifies
the price of energy produced by coal in a non-trade scenario, while Coal^FT is
defined as the coal based energy price in a full trade situation. Obviously, wind-
based energy production becomes competitive compared to coal-based energy
production at a lower emissions-reduction level in a non-trade situation.

Figure 2: Change in relative prices from different reductions policies

How does the appearance of first mover advantages relate to the switch-points?
The appearance of technological improvements on non-renewable energy
sources also changes the switch points, but now in all countries that can inte-
grate the new technology into their energy supply sector less cheaply than with-

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