Developing Supra-European Emissions Trading Schemes: An Efficiency and International Trade Analysis

41 Pages Posted: 29 Jun 2007 Last revised: 26 Aug 2008

See all articles by Viktoria Alexeeva-Talebi

Viktoria Alexeeva-Talebi

ZEW – Leibniz Centre for European Economic Research

Niels Anger

ZEW – Leibniz Centre for European Economic Research

Date Written: 2007

Abstract

Given the coexistent EU priorities concerning the competitiveness of European industries and international emissions regulation at the company level, this paper assesses the efficiency and competitiveness implications of linking the EU Emissions Trading Scheme (ETS) to emerging trading schemes outside Europe. Currently, countries like Canada, Japan or Australia are contemplating the set up of domestic ETS with the intention of linking up to the European scheme. While a stylized partial-market analysis suggests that the integration of trading systems is always beneficial in efficiency terms, our applied general equilibrium approach shows that the aggregate welfare impacts of linking the EU ETS are rather limited. We further find that the trade-based competitiveness effects of linking the European ETS crucially depend on the linked trading system: Although EU economy-wide competitiveness varies only moderately across linking scenarios, the sectoral decomposition of these aggregate effects shows that European industries are much more sensitive to the linking constellation. Similarly, the incentives for non-EU regions to join the European system display considerable heterogeneity. A stricter allowance allocation within domestic ETS can, however, substantially improve the overall prospects for establishing supra-European emissions trading schemes.

Keywords: Emissions Trading, EU ETS, Linking, Competitiveness, CGE model

JEL Classification: D61, H40

Suggested Citation

Alexeeva-Talebi, Viktoria and Anger, Niels, Developing Supra-European Emissions Trading Schemes: An Efficiency and International Trade Analysis (2007). ZEW - Centre for European Economic Research Discussion Paper No. 07-038, Available at SSRN: https://ssrn.com/abstract=997226 or http://dx.doi.org/10.2139/ssrn.997226

Viktoria Alexeeva-Talebi

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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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