The Effects for Brazil of Linking Emissions Trading Schemes in the context of the Heterogeneity of Trading Partners

Thais Oliveira, Angelo Gurgel and Steve Tonry

No 332951, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: International climate negotiations have recently underlined the relevance of international cooperation via carbon pricing to tackle climate change. With Emissions Trading Schemes (ETS) emerging in developed and developing regions around the world, linking these systems may become a future option. This raises the question as to the appropriateness of linking these ETS systems. This paper analyses the impact of a hypothetical ETS covering electricity and energy-intensive sectors for Brazil, using a global economy-wide model - the EPPA6. Additionally, we simulate links with a developed region (Europe) and two developing regions (Latin America and China). We find that linking Brazil with a heterogeneous partner such as Europe results in larger emission reductions, technological substitution towards alternative energy and losses in GDP and welfare, as both regions have ambitious targets; whereas linking with China is more cost-effective due to the contrasting stringency of targets. A link with regions of similar energy and economic profile produces moderate reductions and negative distributional impacts, especially where the targets are less ambitious such as is the case for Latin America. Accordingly, there are advantages and disadvantages associated to each proposed trading situation, with Brazil presenting an import profile for emissions permits in all scenarios. A more appropriate ETS design to seize mitigation opportunities cost-effectively for Brazil includes a less stringent cap or an alternative sectoral ETS coverage.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:332951

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