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

Niels Anger

No 06-058, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

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.

Keywords: EU ETS; Emission Trading; Kyoto Protocol; Clean Development Mechanism (search for similar items in EconPapers)
JEL-codes: D61 H21 H22 Q58 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-eec, nep-ene, nep-env and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:5452

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