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The environmental and economic effects of European emissions trading

Author

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

Abstract

In this article, we analyse the effects of emissions trading in Europe, with special reference to Germany. We look at the value of the flexibility gained by trading compared to fixed quotas. The analysis is undertaken with a modified version of the GTAP-E model using the latest GTAP version 6 database. It is based on the national allocation plans (NAP) as submitted to and approved by the EU. We find that, in a regional emissions trading scheme, Germany, Great Britain and the 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 and 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, (negative) terms-of-trade effects can offset the (positive) allocative efficiency gains for the cases of the Netherlands and Italy, while all other regions end up with positive net welfare gains. All regions, however, experienced increases in real GDP as a result of regional emissions trading.

Suggested Citation

  • Claudia Kemfert & Michael Kohlhaas & Truong Truong & Artem Protsenko, 2006. "The environmental and economic effects of European emissions trading," Climate Policy, Taylor & Francis Journals, vol. 6(4), pages 441-455, July.
    • Handle: RePEc:taf:tcpoxx:v:6:y:2006:i:4:p:441-455
    DOI: 10.1080/14693062.2006.9685612
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    References listed on IDEAS

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    1. Kruger, Joseph & Pizer, William A., 2004. "The EU Emissions Trading Directive: Opportunities and Potential Pitfalls," Discussion Papers 10679, Resources for the Future.
    2. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
    3. 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 - Leibniz Centre for European Economic Research.
    4. Burniaux, Jean-Marc & Truong Truong, 2002. "GTAP-E: An Energy-Environmental Version of the GTAP Model," GTAP Technical Papers 923, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    5. Burniaux, Jean-March & Truong, Truong P., 2002. "Gtap-E: An Energy-Environmental Version Of The Gtap Model," Technical Papers 28705, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
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