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The EUs gain (loss) from more emission trading flexibility—A CGE analysis with parallel emission trading systems

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  • M. Khabbazan, Mohammad

Abstract

The EU has established the world's first and biggest emission-trading systems (ETS) covering aviation, emission-intensive sectors, and electricity (EITE). This paper employs a multi-regional multi-sectoral CGE model with two simultaneous international emission permit markets. After examining the abatement costs for the EU regions, various policy scenarios are implemented to study the welfare effects of forming an ETS covering NEIT sectors and its linking with the EITE sectors under two different baselines and four emission reduction targets. The results provide several important insights: i) Marginal abatement costs in Germany and the Eastern European Union region (EEU) are significantly lower than in the rest of the EU regions. ii) The carbon price in the emission permit market covering NEIT is significantly higher than the carbon price in the emission permit market covering EITE. iii) Germany and EEU appear as notable suppliers of emission permits in both markets. iv) There is a significant aggregate welfare gain under the scenario in which the ETS covering NEIT co-exists parallel with the ETS covering EITE. v) The aggregate welfare in the EU under the full integration of EITE and NEIT may fall below its value under the scenario with two parallel emission permit markets.

Suggested Citation

  • M. Khabbazan, Mohammad, 2022. "The EUs gain (loss) from more emission trading flexibility—A CGE analysis with parallel emission trading systems," Conference papers 333489, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
  • Handle: RePEc:ags:pugtwp:333489
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    Keywords

    Environmental Economics and Policy; International Relations/Trade;

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