Output-Based Allocation of Emissions Permits for Mitigating the Leakage and Competitiveness Issues for the Japanese Economy

The adoption of domestic emissions trading schemes (ETS) can impose a heavy burden on energy-intensive industries. In particular, energy-intensive industries competing with foreign competitors could lose their international edge. Although the abatement of carbon dioxide (CO2) emissions in industrialized countries entails the reduction of their energy-intensive production, a corresponding increase in the production of energy-intensive goods in countries without CO2 regulations may lead to carbon “leakage.” This paper examines the effects of various allocation methods for granting emissions permits in the Japanese ETS on the economy and CO2 emissions using a multiregional and multisector computable general equilibrium model. Specifically, we apply the Fischer and Fox (2007) model to the Japanese economy to address carbon leakage and competitiveness issues. We compare auction schemes, grandfathering schemes, and output-based allocation (OBA) schemes. We further extend the model by examining a combination of auctions and OBA. Though the auction scheme is found to be the best in terms of macroeconomic impacts (welfare and GDP effects), the leakage rate is high and the harm to energy-intensive sectors can be significant. OBA causes less leakage and damage to energy-intensive sectors, but the macroeconomic impact is undesirable. Considering all three effects—leakage, competitiveness, and macroeconomics—we find that combinations of auctions and OBA (with gratis allocations solely to energy-intensive, trade-exposed sectors) are desirable.climate change, emissions trading, emissions permit allocations, output-based allocation, auction, grandfathering, international competitiveness, carbon leakage, CGE analysis

Effects of Environment-Related Stimulus Policies: An Event Study Approach

As part of the environment-related stimulus package implemented in the wake of the 2008 global financial crisis, the Japanese government introduced tonnage and acquisition tax breaks and a subsidy programme for eco-friendly vehicles. However, there has been limited research on their economic effects. Therefore, this paper employs the event study methodology to examine not only the direct economic effects on automobile firms’ performance but also the spillover economic effects on automobile parts firms’ performance of the eco-car tax breaks and eco-car subsidy programme. Our results show that the eco-car tax breaks had lower positive economic direct effects and no positive spillover effects. The eco-car subsidy programme had more significantly positive direct economic effects and positive spillover effects. The eco-car tax breaks and eco-car subsidy programme had dissimilar economic effects because the length of the implementation period and preferential monetary benefits were different in each case. A mixed policy that combines the eco-car tax breaks and the eco-car subsidy programme is preferable to the eco-car tax breaks alone

Post-Kyoto Climate Regimes: Per Capita Cumulative CO2 Emissions versus Contraction and Convergence of CO2 Emissions

The Copenhagen Accord sets the target for the post-Kyoto international climate framework as limiting the global temperature increase to less than 2 degrees Celsius above the pre-industrial levels. In this paper, we construct a dynamic computable general equilibrium model and analyze the economic effects of two methods for allocating emission quotas across all countries under the post-Kyoto international climate framework. Two types of CO2 emission quotas are considered: “historical responsibility” (HR), which allocates emission quotas such that the per capita cumulative CO2 emissions for the 1950–2050 period are equalized across all countries and “contraction and convergence of CO2 emissions”(C&C), which allocates emission quotas such that the per capita CO2 emissions in 2050 are equalized across all countries. Meinshausen et al (2009) states that limiting the cumulative CO2 emissions over the 2000–2050 period to 1,440 Gt CO2 yields a 50% probability of warming exceeding 2 degrees Celsius, relative to the pre-industrial levels. This paper assumes that the global cumulative CO2 emissions from 2000 to 2050 are 1,440 Gt CO2. It is shown that the rates of decrease in the GDP of developing countries under the HR scenario are smaller than those under the C&C scenario. In addition, the rates of decrease in the GDP of industrialized countries under the C&C scenario are smaller than those under the HR scenario. China becomes the importer of emission rights in the long run, even under the HR scenario, whose allocation method is based on cumulative CO2 emissions. Moreover, GDP loss in China increases over time (GDP losses in China worsen off over time)

Post-Kyoto Climate Regimes: Per Capita Cumulative CO2 Emissions versus Contraction and Convergence of CO2 Emissions

The Copenhagen Accord sets the target for the post-Kyoto international climate framework as limiting the global temperature increase to less than 2 degrees Celsius above the pre-industrial levels. In this paper, we construct a dynamic computable general equilibrium model and analyze the economic effects of two methods for allocating emission quotas across all countries under the post-Kyoto international climate framework. Two types of CO2 emission quotas are considered: “historical responsibility” (HR), which allocates emission quotas such that the per capita cumulative CO2 emissions for the 1950–2050 period are equalized across all countries and “contraction and convergence of CO2 emissions”(C&C), which allocates emission quotas such that the per capita CO2 emissions in 2050 are equalized across all countries. Meinshausen et al (2009) states that limiting the cumulative CO2 emissions over the 2000–2050 period to 1,440 Gt CO2 yields a 50% probability of warming exceeding 2 degrees Celsius, relative to the pre-industrial levels. This paper assumes that the global cumulative CO2 emissions from 2000 to 2050 are 1,440 Gt CO2. It is shown that the rates of decrease in the GDP of developing countries under the HR scenario are smaller than those under the C&C scenario. In addition, the rates of decrease in the GDP of industrialized countries under the C&C scenario are smaller than those under the HR scenario. China becomes the importer of emission rights in the long run, even under the HR scenario, whose allocation method is based on cumulative CO2 emissions. Moreover, GDP loss in China increases over time (GDP losses in China worsen off over time)

Output-based allocation of emissions permits for mitigating the leakage and competitiveness issues for the Japanese economy

The adoption of domestic emissions trading schemes (ETS) can impose a heavy burden on energy-intensive industries. Particularly, energy-intensive industries competing with foreign competitors could lose their international edge. Although the abatement of CO2 emissions in industrialized countries entails the reduction of their energy-intensive production, a corresponding increase in the production of energy-intensive goods in countries without CO2 regulations may lead to carbon "leakage." This paper examines the effects of various allocation methods of emissions permits in the Japanese ETS on the economy and CO2 emissions using a multiregional and multisector computable general equilibrium model. Specifically, we apply the Fischer and Fox (Land Econ 83(4):575-599, 2007) model to the Japanese economy to address carbon leakage and competitiveness issues. We compare auction schemes, grandfathering schemes, and output-based allocation (OBA) schemes. We further extend the model by examining a combination of auctions and OBA. Though the auction scheme is found to be the best in terms of macroeconomic impacts, the leakage rate is high and the harm to energy-intensive sectors can be significant. OBA causes less leakage and damage to energy-intensive sectors, but the macroeconomic impact is undesirable. Considering all three effects-leakage, competitiveness, and macroeconomics-we find that combinations of auctions and OBA are desirable