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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

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.

Suggested Citation

  • Marcel Brinkman & Samuel Fankhauser & Ben Irons & Stephan Weyers, 2009. "The carbon market in 2020: volumes, prices and gains from trade," GRI Working Papers 11, Grantham Research Institute on Climate Change and the Environment.
  • Handle: RePEc:lsg:lsgwps:wp11
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    References listed on IDEAS

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    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
    2. Hoel, Michael & Karp, Larry, 2001. "Taxes and quotas for a stock pollutant with multiplicative uncertainty," Journal of Public Economics, Elsevier, vol. 82(1), pages 91-114, October.
    3. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
    4. Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.
    5. 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 Working Papers JRC50307, Joint Research Centre (Seville site).
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