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The Environmental and Economic Effects of European Emissions Trading

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  • Claudia Kemfert
  • Michael Kohlhaas
  • Truong P. Truong
  • Artem Protsenko

Abstract

In 2005, the EU introduced an emissions trading system in order to pursue its Kyoto obligations. This instrument gives emitters the flexibility to undertake reduction measures in the most cost-efficient way and mobilizes market forces for the protection of the earth's climate. In this paper, we analyse the effects of emissions trading in Europe, with some special reference to the case of Germany. We look at the value of the flexibility gained by trading compared to fixed quotas. The analysis will be undertaken with a modified version of the GTAP-E model using the latest GTAP version 6 data base. It is based on the national allocation plans as submitted to and approved by the EU. We find that, if the NAP is combined with a regional emissions trading scheme, then Germany, Great Britain, and Czech Republic are the main sellers of emissions permits, while Belgium, Denmark, Finland, and Sweden are the main buyers. The welfare gains from regional emissions trading - for the trading sectors only - are largest for Belgium, Denmark, and Great Britain; smaller for Finland, Sweden, and smallest for Germany and other regions. When we take into account the economy-wide and terms of trade effects of emissions trading, however, the (negative) terms of trade effects can offset the (positive) allocative efficiency gains for the cases of the Netherland and Italy, while all other regions ended up with positive net welfare gains. All regions, however, experienced positive increases in real GDP as a result of regional emissions trading.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.43875.de/dp533.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 533.

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Length: 21 p.
Date of creation: 2005
Date of revision:
Publication status: Published in: Climate Policy 6 (2006), No. 4, 441-455
Handle: RePEc:diw:diwwpp:dp533

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  1. Löschel, Andreas & Lange, Andreas & Hoffmann, Tim & Böhringer, Christoph & Moslener, Ulf, 2004. "Assessing Emission Allocation in Europe: An Interactive Simulation Approach," ZEW Discussion Papers 04-40, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Cited by:
  1. N. Anger & B. Brouns & J. Onigkeit, 2009. "Linking the EU emissions trading scheme: economic implications of allowance allocation and global carbon constraints," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 14(5), pages 379-398, June.
  2. Anger, Niels & Oberndorfer, Ulrich, 2008. "Firm performance and employment in the EU emissions trading scheme: An empirical assessment for Germany," Energy Policy, Elsevier, vol. 36(1), pages 12-22, January.
  3. Maria Berrittella & Filippo Alessandro Cimino, 2012. "The Carousel Value-added Tax Fraud in the European Emission Trading System," Working Papers 2012.75, Fondazione Eni Enrico Mattei.
  4. Jarait, Jurate & Di Maria, Corrado, 2014. "Did the EU ETS make a difference? An empirical assessment using Lithuanian firm-level data," CERE Working Papers 2014:2, CERE - the Center for Environmental and Resource Economics.
  5. Oberndorfer, Ulrich & Rennings, Klaus, 2006. "The Impact of the European Union Emissions Trading Scheme on Competitiveness in Europe," ZEW Discussion Papers 06-51, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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