Assessment of U.S. cap-and-trade proposals

The MIT Emissions Prediction and Policy Analysis model is applied to an assessment of a set of cap-and-trade proposals being considered by the U.S. Congress in spring 2007. The bills specify emissions reductions to be achieved through 2050 for the standard six-gas basket of greenhouse gases. They fall into two groups: one specifies emissions reductions of 50% to 80% below 1990 levels by 2050; the other establishes a tightening target for emissions intensity and stipulates a time path for a "safety valve" limit on the emission price that approximately stabilizes U.S. emissions at the 2008 level. A set of three synthetic emissions paths are defined that span the range of stringency of these proposals, and these "core" cases are analyzed for their consequences in terms of emissions prices, effects on energy markets, welfare cost, the potential revenue generation if allowances are auctioned and the gains if permit revenue were used to reduce capital or labor taxes. Initial period prices for the first group of proposals, in carbon dioxide equivalents, are estimated between $30 and$50 per ton CO2-e depending on where each falls in the 50% to 80% range, with these prices rising by a factor of four by 2050. Welfare costs are less than 0.5% at the start, rising in the most stringent case to near 2% in 2050. If allowances were auctioned these proposals could produce revenue between $100 billion and$500 billion per year depending on the case. Emissions prices for the second group, which result from the specified safety-valve path, rise from $7 to$40 over the study period, with welfare effects rising from near zero to approximately a 0.5% loss in 2050. Revenue in these proposals depends on how many allowances are freely distributed.(cont.) To analyze these proposals assumptions must be made about mitigation effort abroad, and simulations are provided to illuminate terms-of-trade effects that influence the emissions prices and welfare effects, and even the environmental effectiveness, of U.S. actions. Sensitivity tests also are provided of several of the design features imposed in the "core" scenarios including the role of banking, the specification of less than complete coverage of economic sectors, and the development of international permit trading. Also, the effects of alternative assumptions about nuclear power development are explored. Of particular importance in these simulations is the role of biofuels, and analysis is provided of the implications of these proposals for land use and agriculture. Finally, the U.S. proposals, and the assumptions about effort elsewhere, are extended to 2100 to allow exploration of the potential role of these bills in the longer-term challenge of reducing climate change risk. Simulations using the MIT Integrated System Model show that the 50% to 80% targets are consistent with global goals of atmospheric stabilization at 450 to 550 ppmv CO2 but only if other nations, including the developing countries, follow

The Kyoto Protocol: Regional and Sectoral Contributions to the Carbon Leakage

Carbon dioxide emissions abatement in a grou p of countries can result in increased emissions in non-abatingcountries. This effect has been referred to as carbon leakage. The Kyoto Protocol calls for a number of industrialized countries to limit their emissions while other countries have no abatement commitments. This paper assesses the sectoral and regional determinants of the leakage in a static multi-sector, multi-regional computable general equilibrium model. In baseline estimates based on our model, the Kyoto Protocol leads to a carbon leakage rate of 10 percent. A decomposition technique is applied which attributes increases in CO2 emissions by non-participating countries to specific sectors in the abating countries. This information is important for the debate on the tax exemptions for certain industries in the participating countries as it provides information for the most- and least leakage contributing sectors of the economy. Additional calculations indicate the need for caution in the carbon tax design. Exemptions of any sector from a carbon tax are not justifled because they lower welfare in a region. The degree of sectoral and regional data disaggregation, and international capital mobility do not change the leakage rate significantly. Fossil-fuel supply elasticities and trade substitution elasticities are crucial determinants for projecting the total world emissions of CO2.

Carbon co-benefits of tighter SO2 and NOx regulations in China

Air pollution has been recognized as a significant problem in China. In its Twelfth Five Year Plan, China proposes to reduce SO2 and NOx emissions significantly, and here we investigate the cost of achieving those reductions and the implications of doing so for CO2 emissions. We extend the analysis through 2050, and either hold emissions policy targets at the level specified in the Plan, or continue to reduce them gradually. We apply a computable general equilibrium model of the Chinese economy that includes a representation of pollution abatement derived from detailed assessment of abatement technology and costs. We find that China's SO2 and NOx emissions control targets would have substantial effects on CO2 emissions leading to emissions savings far beyond those we estimate would be needed to meet its CO2 intensity targets. However, the cost of achieving and maintaining the pollution targets can be quite high given the growing economy. In fact, we find that the near term pollution targets can be met while still expanding the use of coal, but if they are, then there is a lock-in effect that makes it more costly to maintain or further reduce emissions. That is, if firms were to look ahead to tighter targets, they would make different technology choices in the near term, largely turning away from increased use of coal immediately. © 2013 Elsevier Ltd.link_to_subscribed_fulltex