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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.

Suggested Citation

  • Claudia Kemfert & Michael Kohlhaas & Truong P. Truong & Artem Protsenko, 2005. "The Environmental and Economic Effects of European Emissions Trading," Discussion Papers of DIW Berlin 533, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp533
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    References listed on IDEAS

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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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    1. repec:eee:enepol:v:109:y:2017:i:c:p:835-844 is not listed on IDEAS
    2. 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.
    3. repec:wsi:ccexxx:v:01:y:2010:i:02:n:s2010007810000108 is not listed on IDEAS
    4. repec:eee:enepol:v:108:y:2017:i:c:p:281-291 is not listed on IDEAS
    5. Obernhofer, Ulrich & Rennings, Klaus & Sahin, Bedia, 2006. "The impacts of the European Emissions Trading Scheme on competitiveness and employment in Europe: A literature review," ZEW Expertises, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research, number 111466.
    6. 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.
    7. Oberndorfer, Ulrich & Rennings, Klaus, 2006. "The Impact of the European Union Emissions Trading Scheme on Competitiveness in Europe," ZEW Discussion Papers 06-051, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Inha Oh & Yeongjun Yeo & Jeong-Dong Lee, 2015. "Efficiency versus Equality: Comparing Design Options for Indirect Emissions Accounting in the Korean Emissions Trading Scheme," Sustainability, MDPI, Open Access Journal, vol. 7(11), pages 1-21, November.
    9. Yazid Dissou and Muhammad Shahid Siddiqui, 2013. "Regional Trade Agreements, Emissions Bubbles, and Carbon Tariff Harmonization," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    10. 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.
    11. Jurate Jaraite-Ka~ukauske and Corrado Di Maria, 2016. "Did the EU ETS Make a Difference? An Empirical Assessment Using Lithuanian Firm-Level Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    12. Beckman, Jayson & Hertel, Thomas & Tyner, Wallace, 2011. "Validating energy-oriented CGE models," Energy Economics, Elsevier, vol. 33(5), pages 799-806, September.
    13. Victoria Alexeeva & Niels Anger, 2016. "The globalization of the carbon market: Welfare and competitiveness effects of linking emissions trading schemes," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 21(6), pages 905-930, August.
    14. Chang, Kai & Zhang, Chao & Chang, Hao, 2016. "Emissions reduction allocation and economic welfare estimation through interregional emissions trading in China: Evidence from efficiency and equity," Energy, Elsevier, vol. 113(C), pages 1125-1135.
    15. Siriwardana, Mahinda, 2014. "Australia’s new Free Trade Agreements with Japan and South Korea: Potential Impacts on the Resources and Agricultural Sectors and their Environmental Implications," 2014 Conference, August 28-29, 2014, Nelson, New Zealand 187405, New Zealand Agricultural and Resource Economics Society.
    16. Yang, Lin & Li, Fengyu & Zhang, Xian, 2016. "Chinese companies’ awareness and perceptions of the Emissions Trading Scheme (ETS): Evidence from a national survey in China," Energy Policy, Elsevier, vol. 98(C), pages 254-265.

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