Efficiency and Equity of the EU Burden Sharing Agreement
AbstractIn this paper we investigate the EU Burden Sharing Agreement on the distribution of the Kyoto emission reduction target over the EU member states. We use an inverse welfare optimum approach to compute the implicit weights making the Burden Sharing Agreement a welfare optimum for the EU. This methodology enables us to visualise the efficiency-equity trade off which was made by the EU negotiators. We present simulations based on marginal carbon emission abatement cost curves estimated on data generated by the GEM-E3 Europe general equilibrium model. Our simulations reveal that the EU Burden Sharing Agreement improves in terms of cost efficiency upon a uniform reduction assignment but that substantial differences in marginal costs persist. Some poorer EU member states like Portugal and Spain have been allowed by the agreement to increase their emissions considerably but, even if we do not care about distributional justice, their allowances are too low according to the inverse optimum approach. Also Sweden, the Netherlands and Belgium should abate less in order to improve cost efficiency. On the other hand, Germany, the UK, France and Denmark should curb their emissions by more than what has been assigned to them in the EU Burden Sharing Agreement. We show that introducing a measure of inequality aversion reinforces most of these conclusions. We also apply the inverse optimum approach to a scenario in which we allow for emission trading, possibly with market power. Sensitivity analysis shows that results are rather robust with respect to assumptions concerning baseline emissions and cost functions.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment in its series Energy, Transport and Environment Working Papers Series with number ete0002.
Length: 34 pages
Date of creation: Nov 2000
Date of revision: Jun 2002
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welfare economics; inverse optimum; emission trading; marginal abatement cost curves;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-11-27 (All new papers)
- NEP-ENE-2001-11-27 (Energy Economics)
- NEP-ENT-2001-11-27 (Entrepreneurship)
- NEP-NET-2001-11-27 (Network Economics)
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- Anabela Botelho & Eduarda Fernandes & Ligia Costa Pinto, 2010. "An experimental analysis of grandfathering vs dynamic auctioning in the EU ETS," NIMA Working Papers 39, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
- Johannes Emmerling & Massimo Tavoni, 2013. "Geoengineering and Abatement: A “flat” Relationship under Uncertainty," Working Papers 2013.31, Fondazione Eni Enrico Mattei.
- Szabo, Laszlo & Hidalgo, Ignacio & Ciscar, Juan Carlos & Soria, Antonio, 2006. "CO2 emission trading within the European Union and Annex B countries: the cement industry case," Energy Policy, Elsevier, vol. 34(1), pages 72-87, January.
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