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The carbon market in 2020: volumes, prices and gains from trade

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  • Marcel Brinkman
  • Samuel Fankhauser
  • Ben Irons
  • Stephan Weyers
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    Abstract

    Carbon markets are central to the global effort to reduce greenhouse gas emissions. This paper introduces a new carbon market model that aims to simulate the development of the global carbon market over the next 10-20 years. The model is based on detailed regional and sectoral marginal abatement cost data and takes an “investor perspective”. That is, it takes into account market distortions like taxes and accounts for imperfections in policy delivery. We estimate that implementing all the carbon market proposals that are currently contemplated would result in global emission reductions of 7 GtCO2 by 2020 – substantial, but well short of the mitigation effort required for a 450ppm CO2e pathway. The global carbon price would vary from €30 per tCO2 in Europe to €15 per tCO2 on the international offset market and in the new US emissions trading scheme currently under discussion.

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    Bibliographic Info

    Paper provided by Grantham Research Institute on Climate Change and the Environment in its series Grantham Research Institute on Climate Change and the Environment Working Papers with number 11.

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    Date of creation: Nov 2009
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    Handle: RePEc:lsg:lsgwps:wp11

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    1. Michael Hoel & Larry Karp, 1999. "Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty," Working Papers 1999.15, Fondazione Eni Enrico Mattei.
    2. Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.
    3. Peter Russ & Juan Carlos Ciscar & Bert Saveyn & Antonio Soria & Laszlo Szabo & Tom Van Ierland & Denise Van Regemorter & Rosella Virdis, 2009. "Economic Assessment of Post-2012 Global Climate Policies - Analysis of Gas Greenhouse Gas Emission Reduction Scenarios with the POLES and GEM-E3 models," JRC-IPTS Working Papers JRC50307, Institute for Prospective and Technological Studies, Joint Research Centre.
    4. Pizer, William & Newell, Richard, 1998. "Regulating Stock Externalities Under Uncertainty," Discussion Papers dp-99-10-rev, Resources For the Future.
    5. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
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