Linking the EU emissions trading scheme: economic implications of allowance allocation and global carbon constraints

We investigate the role of domestic allowance allocation and global emissions constraints for the carbon-market impacts of linking the EU Emissions Trading Scheme (ETS) internationally. Employing a quantitative simulation model of the global carbon market, we find that the economic benefits from con...

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Bibliographic Details
Published in:Mitigation and adaptation strategies for global change 2009-06, Vol.14 (5), p.379-398
Main Authors: Anger, N, Brouns, B, Onigkeit, J
Format: Article
Language:English
Subjects:
Agreements
Atmospheric Sciences
Carbon
Carbon dioxide
Climate
Climate change
Climate Change Management and Policy
Climate policy
Compliance
Costs
Developing countries
Earth and Environmental Science
Earth Sciences
Economic impact
Economics
Emissions control
Emissions trading
Environmental Management
Environmental policy
Greenhouse effect
Kyoto Protocol
LDCs
Original Article
Regions
Simulation
Studies
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Summary:We investigate the role of domestic allowance allocation and global emissions constraints for the carbon-market impacts of linking the EU Emissions Trading Scheme (ETS) internationally. Employing a quantitative simulation model of the global carbon market, we find that the economic benefits from connecting the European ETS to emerging non-EU schemes strongly depend on the regional allowance allocation of the linking participants: In a world of moderate carbon constraints, an economically efficient regional allowance allocation induces a much stronger fall in total compliance costs than a sub-optimal (i.e. too high) domestic allocation of emissions permits. However, a more efficient (i.e. stricter) allocation shifts abatement efforts and compliance costs to energy-intensive industries which are covered by the domestic ETS. We further find that committing to ambitious global emissions reduction targets (compatible with stabilizing CO₂ concentrations at 450 ppm) induces much stronger regional abatement efforts and substantially higher compliance costs for the abating regions. In such an ambitious climate policy regime, an efficient domestic allocation of allowances is even more important from an economic perspective: Here, linking emissions trading schemes diminishes the associated compliance costs on the largest scale.
ISSN:1381-2386
1573-1596
DOI:10.1007/s11027-009-9180-y