Marginal Abatement Cost Curves in General Equilibrium: The Influence of World Energy Prices

Marginal abatement cost curves (MACCs) are one of the favorite instruments to analyze the impacts of the implementation of the Kyoto Protocol and emissions trading. As shown in this paper one important factor that influences MACCs are energy prices. This leads to the question of how to define MACCs in a general equilibrium context where the overall abatement level world wide influences energy prices and thus national MACCs. We first discuss the mechanisms theoretically and then use the CGE model DART to quantify the effects. The result is, that changes in energy prices resulting from different world wide abatement levels do indeed affect the national MACCs. Also, we compare different possibilities of defining MACCs - of which some turn out to be robust against changes in energy prices while others vary considerably.Climate change, Marginal abatement cost, Energy price, Computable general equilibrium model

The EU Emissions Trading Scheme. Allowance Prices, Trade Flows, Competitiveness Effects

The upcoming European Emissions Trading Scheme (ETS) is one of the more controversial climate policy instruments. Predictions about its likely impact and its performance can at present only be made to a certain degree. As long as the National Allocations Plans are not finally settled the overall supply of allowances is not determined. In this paper we will identify key features and key impacts of the EU ETS by scanning the range of likely allocation plans using the simulation model DART. The analysis of the simulation results highlights a number of interesting details in terms of allowance trade flows between member countries, of allowance prices, and in terms of the role of the accession countries in the ETS.EU Emissions trading scheme, Kyoto targets, Computable general equilibrium model, DART

Marginal abatement cost curves in general equilibrium: The influence of world energy prices.

Marginal abatement cost curves (MACCs) are a favorite instrument to analyze international emissions trading. This paper focusses on the question of how to define MACCs in a general equilibrium context where the global abatement level influences energy prices and in turn national MACCs. We discuss the mechanisms theoretically and then use the CGE model DART for quantitative simulations. The result is, that changes in energy prices resulting from different global abatement levels do indeed affect national MACCs. Also, we compare different possibilities of defining MACCs - of which some are robust against changes in energy prices while others vary considerably.Klimaschutz; Klimaveränderung; Umweltschutzkosten; Erdölpreis; Allgemeines Gleichgewicht; Simulation; Welt;Climate change , marginal abatement cost curves , energy prices , computable general equilibrium model;

Trading hot-air : the influence of permit allocation rules, market power and the US withdrawal from the Kyoto Protocol.

After the conferences in Bonn and Marrakech it is likely that international emissions trading will be realized in the near future. Major influences on the permit market are the institutional detail, the participation structure and the treatment of hot-air. Different scenarios do not only differ in their implications for the demand and supply of permits and thus the permit price, but also in their allocative effects. In this paper we discuss likely institutional designs for permit allocation in the hot-air economies and the use of market power and quantify the resulting effects by using the computable general equilibrium model DART. It turns out that the amount of hot-air supplied will be small if hot-air economies cooperate in their decisions. Under welfare maximization more hot-air is supplied than in the case were governments try to maximize revenues from permit sales.Emissionsrechte; Klimaschutz; Umweltabkommen; Allgemeines Gleichgewicht; Wirtschaftspolitische Wirkungsanalyse;CGE Model , DART , Emission Trading , Hot-Air , Kyoto Protocol , Market Power , Permit Allocation;

The EU emissions trading scheme allowance prices, trade flows and competitiveness effects.

The upcoming European Emissions Trading Scheme (ETS) is one of the more controversial climate policy instruments. Predictions about its likely impact and its performance can at present only be made to a certain degree. As long as the National Allocations Plans are not finally settled the overall supply of allowances is not determined. In this paper, we will identify key features and key impacts of the EU ETS by scanning the range of likely allocation plans using the simulation model DART. The analysis of the simulation results highlights a number of interesting details in terms of allowance trade flows between Member States, of allowance prices, and in terms of the role of the accession countries in the ETS. An important finding about the impact of the new ETS with respect to achieving emission reductions more efficiently, i.e. at lower cost, is that savings can only be realized if the cap on emissions is distributed between the ETS sector and the rest of the economy in such a way that the different abatement costs are taken into account. This would imply a relatively small allocation of emissions to the ETS sector. The second important result concerns the role of the accession countries. Even if they do not supply their hot-air in the ETS market, they contribute substantially to the cost savings of the ETS by offering low cost abatement options.Klimaschutz; Emissionsrechte; Preis; Allgemeines Gleichgewicht; Simulation; EU-Staaten;EU emissions trading scheme , permit allocation , Kyoto targets , computable general equilibrium model , DART;

US participation, permit allocation, and hot air supply.

After Bonn and Marrakech it is likely that emission trading will be realized in the near future. Major influences on the permit market are the institutional details, the participation structure and the treatment of hot air. Different scenarios do not only differ in their implications for the demand and supply of permits and thus the permit price, but also in their allocative effects. Most repercussions can be expected to stem from the effects on the world markets for fossil fuel and especially the oil market. For example the withdrawal of the USA from the Kyoto Protocol and the allocation mechanism for the hot air in Russia, Ukraine and Eastern Europe influence the level of energy demand and gross and net energy prices which in turn change the production structure of energy intensive goods and influence welfare depending on whether a country is an energy net exporter or importer. In this paper we discuss different institutional designs for hot air trading combined with the US withdrawal and quantify the effects by using a computable general equilibrium model. Besides detailed results for the analyzed scenarios, two major findings are relevant for future studies on emission trading: First, marginal abatement cost curves are not as stable as presumed up to now. Second, we find that indeed the allocative repercussions of a scenario are to a large degree determined by its effects on world energy demand and world energy prices. Both findings imply that partial equilibrium models of permit trading that are based on marginal abatement curves ignore the important interaction between the permit market and the world energy markets.Emissionshandel; Klimaschutz; Allokation; Wirtschaftspolitische Wirkungsanalyse; Simulation; Allgemeines Gleichgewicht; USA; Welt;

The Future of ETS and CDM in a post-Kyoto World.

This paper discusses the developments in the markets for CO2 emissions rights since the Kyoto Protocol has been signed. The different emission trading schemes dominated by the ETS of the European Union and the Clean Development mechanism are surveyed. These schemes will need to be incorporated in a Post-Kyoto multilateral agreement. Based on a small model the incentives among developing and developed countries for continuing or transforming the Clean Development Mechanism in the light of a stricter world wide emission control are discussed.

Emissions Trading, CDM, JI, and More – The Climate Strategy of the EU

The objective of this paper is to assess the likely allocation effects of the current cli-mate protection strategy as it is laid out in the National Allocation Plans (NAPs) for the European Emissions Trading Scheme (ETS). The multi-regional, multi-sectoral CGE-model DART is used to simulate the effects of the current policies in the year 2012 when the Kyoto targets need to be met. Different scenarios are simulated in order to highlight the effects of the grandfathering of permits to energy-intensive installations, the use of the project-based mechanisms (CDM and JI), and the restriction imposed by the supplementarity criterion.Kyoto targets, EU, EU emissions trading scheme, National allocation plans, CDM and JI, Computable general equilibrium model, DART

Potential impacts of water scarcity on the world economy.

Water affects the economy of a country in many respects. Rivers and streams are used for transportation, acid rain leads to forest damages and health problems caused by water pollution not only reduce the quality of life but also entail economic costs (just to mention a few examples). Mainly though, from an economic perspective, water is an input that is needed directly or indirectly for the production of most goods and services. Water is needed for irrigation in agriculture, serves as a coolant in power stations and is used for cleaning purposes in the chemical industry. The often minor monetary value of water only insufficiently reflects the importance of this most relevant natural resource also for the world economy. This paper will start with a short overview over the economic role of water, the demand for water and its supply in different world regions. This information can then be used to deduce the economic effects of increasing water scarcity on a global level - caused by an increasing demand for water and by climate change. Furthermore, distorted water prices and trade in virtual water will be discussed.Wassermangel; Makroökonomischer Einfluss; Weltwirtschaft;

The economic effects of the EU biofuel target.

In this paper we use the CGE model DART to assess the economic impacts and optimality of different aspects of the EU climate package. A special focus is placed on the 10% biofuel target in the EU. In particular we analyze the development in the biofuel sectors, the effects on agricultural production and prices, and finally overall welfare implications. One of the main findings is that the EU emission targets alone lead to onlyminor increases in biofuel production. Additional subsidies are necessary to reach the 10% biofuel target. This in turn increases European agricultural prices by up to 7%. Compared to a cost-effective scenario in which the EU 20% emission reduction target is reached, additional welfare losses occur due to separated carbon markets and the renewable quotas. The biofuel target has relatively small negative or even positive welfare effects in some scenarios.CGE model; Climate policy; EU; Biofuels;