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Emission trading beyond Europe: linking schemes in a post-Kyoto world

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  • Anger, Niels
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    Abstract

    This paper assesses the economic impacts of linking the EU Emission Trading Scheme (ETS) to emerging schemes beyond Europe, in the presence of a post-Kyoto agreement in 2020. Simulations with a numerical multi-country model of the world carbon market show that linking the European ETS induces only marginal economic benefits: As trading is restricted to energy-intensive industries that are assigned generous initial emissions, the major compliance burden is carried by non-trading industries excluded from the linked ETS. In the presence of parallel government trading under a post-Kyoto Protocol, excluded sectors can however be substantially compensated by international trading at the country level, thus increasing the political attractiveness of the linking process. From an efficiency perspective, a desirable future climate policy regime represents a joint trading system that enables international emission trading between ETS companies and governments. While the Clean Development Mechanism (CDM) cannot alleviate the inefficiencies of linked ETS, in a parallel or joint trading regime the access to abatement options of developing countries induces large additional cost savings. Restricting CDM access via a supplementarity criterion does not significantly decrease the economic benefits from project-based emission crediting. --

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    Bibliographic Info

    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-58.

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    Date of creation: 2006
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    Handle: RePEc:zbw:zewdip:5452

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    Keywords: EU ETS; Emission Trading; Kyoto Protocol; Clean Development Mechanism;

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    1. Böhringer, Christoph & Moslener, Ulf & Sturm, Bodo, 2006. "Hot Air for Sale: A Quantitative Assessment of Russia's Near-Term Climate Policy Options," ZEW Discussion Papers 06-16, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Gernot Klepper & Sonja Peterson, 2003. "On the Robustness of Marginal Abatement Cost Curves: The Influence of World Energy Prices," Kiel Working Papers 1138, Kiel Institute for the World Economy.
    3. Christoph Bohringer & Tim Hoffmann & Andreas Lange & Andreas Loschel & Ulf Moslener, 2005. "Assessing Emission Regulation in Europe: An Interactive Simulation Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-22.
    4. Michaelowa, Axel & Jotzo, Frank, 2005. "Transaction costs, institutional rigidities and the size of the clean development mechanism," Energy Policy, Elsevier, vol. 33(4), pages 511-523, March.
    5. Sonja Peterson, 2006. "Efficient Abatement in Separated Carbon Markets: A Theoretical and Quantitative Analysis of the EU Emissions Trading Scheme," Kiel Working Papers 1271, Kiel Institute for the World Economy.
    6. 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.
    7. Gernot Klepper & Sonja Peterson, 2006. "Emissions Trading, CDM, JI, and More: The Climate Strategy of the EU," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-26.
    8. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
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    Cited by:
    1. Ralf Schüle & Wolfgang Sterk, 2009. "Linking domestic emissions trading schemes and the evolution of the international climate regime bottom-up support of top-down processes? Introduction to the special issue of MITI," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 14(5), pages 375-378, June.
    2. Stankeviciute, Loreta & Kitous, Alban & Criqui, Patrick, 2008. "The fundamentals of the future international emissions trading system," Energy Policy, Elsevier, vol. 36(11), pages 4272-4286, November.
    3. Benz, Eva & Trück, Stefan, 2009. "Modeling the price dynamics of CO2 emission allowances," Energy Economics, Elsevier, vol. 31(1), pages 4-15, January.
    4. V. Oikonomou & C. Jepma, 2008. "A framework on interactions of climate and energy policy instruments," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 13(2), pages 131-156, February.

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