Emission Trading Beyond Europe: Linking Schemes in a Post-Kyoto World

40 Pages Posted: 29 Aug 2006 Last revised: 12 Jan 2014

See all articles by Niels Anger

Niels Anger

ZEW – Leibniz Centre for European Economic Research

Date Written: 2006

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

JEL Classification: D61, H21, H22, Q58

Suggested Citation

Anger, Niels, Emission Trading Beyond Europe: Linking Schemes in a Post-Kyoto World (2006). ZEW - Centre for European Economic Research Discussion Paper No. 06-058, Available at SSRN: https://ssrn.com/abstract=927217 or http://dx.doi.org/10.2139/ssrn.927217

Niels Anger (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

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