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This paper studies when and under what conditions the actions undertaken by the power plants involved in China's emission trading scheme (ETS) pilot became cost effective. Based on unique plant-level panel data and the difference-in-differences strategy, we identify that an insignificant initial reduction in cost efficiency occurred at the announcement stage for power plants in the pilot provinces; however, the cost efficiency of the pilot plants increased significantly following formal policy implementation. Additionally, the by-stage treatment effects differed across the pilot provinces due to localized market and non-market variations. Localized conditions of higher marketization, stricter policy enforcement, and lower carbon dependence enhanced this positive effect. The synthetic control results confirmed this variation in the policy effects. The carbon trading pilots resulted in improved efficiency in power plants in Shanghai, Guangdong, and Tianjin during the period 2013--2017, with an associated total cost saving of approximately 29.75 million RMB. To enhance the efficacy of the ETS policy, our findings suggest that the design of the policy should consider localized external factors. [ABSTRACT FROM AUTHOR]

This paper examines the determinants of residential CO2 emissions, which are not covered by the European Union Emissions Trading System (EU ETS), in 19 European countries between 2000-2017. Using both static and dynamic panel models, we found strong relationships between CO2 emissions per capita, GDP per capita, energy prices and heating needs. We then assessed the impact of European carbon taxation and show that a €20/tonne CO2 tax lowers emissions by 1% on average. We found that this tax affects countries differently in terms of tax revenue-to-GDP ratio. Poland and the Czech Republic would have to pay the highest contribution, and Portugal and Denmark the lowest. Finally, we propose a scenario that equalizes countries' tax burdens. We show that, were Europe to redistribute all tax revenues, the main beneficiaries would be Poland and Belgium, while Denmark and Luxembourg would have to pay a surtax. [ABSTRACT FROM AUTHOR]

Market power in electricity and emission-permit markets in the South-East Europe Regional Electricity Market, which comprises both EU members subject to the EU Emissions Trading System (ETS) and non-EU members exempt from it, affects social welfare and carbon leakage. We examine its impact under three market settings: perfect competition (PC) and two leader-follower versions, in which a leader can exert market power in either the electricity market (S-T) or both the electricity and permit markets (S). Under PC, carbon leakage is equal to 11%-39% of ETS emission reduction depending on the cap stringency. Generally, in S-T, the leader's capacity withholding results in ETS emissions below and non-ETS emissions above PC levels. However, carbon leakage is lower vis-à-vis PC as the ETS emission reduction offsets the non-ETS emission increase. Finally, in S, the leader's propensity to lower the permit price increases ETS emissions and exacerbates carbon leakage compared to S-T. [ABSTRACT FROM AUTHOR]

Power generation under the Renewable Portfolio Standard (RPS) can reduce greenhouse gas emissions below the baseline level, so entities may argue to use this attribute to meet the goal of Emission Trading Scheme (ETS). Although these two quantity-based regulation systems have different policy objectives, both mechanisms are implicitly linked by credit conversions depending on credit prices. This paper builds an analytic partial equilibrium model and derives market equilibria in a closed form to demonstrate how each mechanism influences the other by policy instruments such as a renewable requirement, a reduction target in greenhouse gas emission, levels of penalties, or marginal costs. We can compare "direct vs indirect" effectiveness of a regulatory changes across both markets with the case where converting renewable offsets are completed prohibited. [ABSTRACT FROM AUTHOR]

The presence of market power usually has negative impacts on the cost-effectiveness of the carbon market. As market power-induced efficiency loss depends on permit allocation, the choice of permit allocation methods is likely to affect the cost-effectiveness of the carbon market. This paper examines theoretically how the choice of emission permit allocation method affects the cost-effectiveness of an emissions trading system when market power exists. We find that, under grandfathering and benchmarking, the carbon market would be more efficient if the permits initially allocated to the dominant firm were closer to its CO2 emissions. Under auctioning, the dominant firm tends to lower the CO2 price, which may result in efficiency loss. By combining the modelling results of efficiency loss due to market power and the fairness in terms of CO2 cost pass-through, we finally provide some policy recommendations on how to choose a CO2 emission permit allocation method for different industries. [ABSTRACT FROM AUTHOR]

We investigate the direct role of technological innovation and other factors influencing industrial energy intensity across 17 EU countries over 1995-2009. We develop an innovative industry-level patent dataset and find compelling evidence that patent stock negatively influences industrial energy intensity. In particular, we find a much stronger effect of patent stock on energy-intensive industries with an estimated coefficient of -0.138 which almost double that of less energy-intensive industries (estimated at -0.085). While our results show that energy price remains the major determinant of energy intensity, the chemicals industry, which is not covered by the EU Emissions Trading Scheme (ETS) during the sample period, appears more susceptible to energy prices relative to other energy-intensive industries that are covered by the EU ETS. Exploring regional differences in carbon taxation, we find a significant decline in energy intensity in Northern Europe owing to the carbon tax policy implemented in the early 1990s across the Nordic countries. [ABSTRACT FROM AUTHOR]

This paper is an empirical investigation of the role of banks in the EU Emissions Trading System (EU ETS). This topic is of particular interest considering that banks are responsible for a large and increasing share of overall transactions under the EU ETS and that they provide regulated companies with services related to emissions trading. Using both semi-structured interviews as well as descriptive and regression analysis, we investigated the different roles banks play in EU emissions trading and whether their importance as trading partners differs in relation to different types of regulated companies. Our regressions based on data from the first trading period of the EU ETS show that large companies with trading experience are more likely to choose a trading strategy involving interaction with a range of financial intermediaries, in particular banks or exchanges, than smaller, less professionalized companies, which tend to follow a trading strategy involving brokers (in particular for selling allowances). These findings can help policymakers decide on the level of involvement of non-regulated companies in their systems, which is currently allowed to varying degrees under different ETS. We recommend that this decision should be closely linked to provisions of market oversight and the level of control over the different types of financial players active in emissions trading. [ABSTRACT FROM AUTHOR]

This paper uses a sample of 1,867 firms that participate in the "Top-10,000 Energy- Consuming Enterprises Program" in China and aims to identify strategic traders in its pilot emissions trading scheme. Firms included in the ETS can exert their market power and manipulate allowance prices to achieve low compliance costs, which will consequently influence the effectiveness of this platform. This is of great importance to regulators or designers of this system in identifying these strategic traders and understanding their impact. We follow the basic principle proposed by Godal (2005) and develop a simple and implementable empirical procedure to study firm-level data from seven pilot programs in China. The results show that strategic traders exist with clear regional and sectoral differences. As a consequence of strategic trading by these firms, the overall volume of trading falls remarkably, with a clear increase in total compliance costs. [ABSTRACT FROM AUTHOR]

We investigate the combined effect of an Emissions Trading System (ETS) and renewable energy sources on investments in electricity capacity in energy-only markets. We study the long-term capacity expansion decision in fossil fuel and renewable technologies when electricity demand is uncertain. We model a relevant tradeoff: a higher share of renewable production can be priced at the higher marginal cost of fossil fuel production, yet the likelihood of achieving higher profits is reduced because more electricity demand is met by cheaper renewable production. We illustrate our theoretical results comparing the optimal solutions under a business-as-usual scenario and under an ETS scenario. This illustration shows under which limiting market settings a monopolist prefers to withhold investments in renewable energy sources, highlighting the potential distortionary effect introduced via an ETS. Our conclusions remain unaltered under varying key modelling assumptions. [ABSTRACT FROM AUTHOR]

European wholesale electricity prices have dropped by nearly two thirds since their all-time high around 2008. Different factors have been blamed, or praised, for having caused the price slump: the expansion of renewable energy; the near-collapse of the European emissions trading scheme; over-optimistic power plant investments; a decline in final electricity consumption; and cheap coal and natural gas. This ex-post study of European electricity markets from 2008 to 2015 uses a fundamental power market model to quantify their individual contributions on day-ahead prices. The two countries we study in detail, Germany and Sweden, differ significantly: fuel and CO2 prices were important price drivers in Germany, but in Sweden it was electricity demand. This difference is explained by the nature of the hydro-dominate Nordic electricity system. In both countries, however, the single largest factor depressing prices was the expansion of renewable energy. At the same time, Germany's nuclear phase-out had an upward effect on prices. If one defines the Energiewende as the combination of these two policies, its net effect on power prices was negligible. [ABSTRACT FROM AUTHOR]

In a world of uneven climate policies, concerns about carbon leakage and competitiveness for heavy industries are the main arguments against the implementation of ambitious climate policies. In this paper we investigate a potential competitiveness- driven operational carbon leakage due to the European Union Emissions Trading scheme (EU ETS). We focus on two energy-intensive sectors, cement and steel, and phases I and II of the EU ETS. From a simple analytical model, we derive an equation linking net imports of cement and steel to local and foreign demand along with carbon price. We then econometrically estimate this relation both with ARIMA regression and Prais-Winsten estimation, finding that local and foreign demand are robust drivers of trade flows. We find no significant effect of the carbon price on net imports of steel and cement. We conclude that there is no evidence of carbon leakage in these sectors, at least in the short run. [ABSTRACT FROM AUTHOR]

The intention of this paper is to (i) introduce a multi-regional dynamic emissions trading model and (ii) examine the potential impact of an emissions trading scheme (ETS) on the long-term evolution of energy technologies from national and regional perspectives in China. The establishment of this model is a salutary attempt to Sinicize the global integrated assessment model that combines economy, energy, and environment systems. The simulation results indicate that: (1) for majority of regions, ETS is more effective in cutting CO2 emissions than a harmonized carbon tax (HCT), but this might not be true for the entire country, which means that these two options have little difference in overall carbon reduction; (2) carbon tax policy is a more cost-effective option in curbing CO2 with respect to ETS in the long run; (3) neither ETS nor pure carbon tax provide enough incentives for the breakthrough of carbon-free energy technologies, which illustrates that matching with some other support policies, such as subsidies and R&D investment, is essential to extend the niche market; and (4) In the context of ETS, the diffusion of non-fossil technologies in regions that act as sellers performs much better than this diffusion in the buyer regions. [ABSTRACT FROM AUTHOR]

The emissions trading scheme has recently become an important emissions reduction mechanism in China. The initial quota allocation is one of the key points in its design, which includes the initial quota allocation criterion and allocation method. In this paper, we analyze the regional macroeconomic impacts of emissions trading in China under different quota allocation criteria and allocation methods using a multiregional computable general equilibrium (CGE) model. The results show that the Ability-to-Pay criterion is better than the other criteria, as it can lead to fewer macroeconomic costs and welfare losses; narrow the economic gap between the eastern, central and western regions; and guide investment into the western regions. Comparing free allocation and auction, it is determined that free allocation leads to lower macroeconomic costs, while auction is better at adjusting the industrial structure. This indicates that a hybrid allocation method is preferable. [ABSTRACT FROM AUTHOR]

We estimate the relationship between electricity, fuel and carbon prices in Germany, France, the Netherlands, the Nord Pool market and Spain, using one-year futures for base and peakload prices for the years 2008-2011, corresponding to physical settlement during the second market phase of the EU ETS. We employ a series of estimation methods that allow for an increasing interaction between electricity and input prices on the one hand, and between electricity markets on the other. The results vary by country due to different generation portfolios. Overall, we find that (a) carbon costs are passed through fully in most countries; (b) under some model specifications, cost pass-through is higher during peakload than during baseload for France, Germany and the Netherlands; and (c) the results are sensitive to the degree of cross-commodity and cross-market interaction allowed. [ABSTRACT FROM AUTHOR]

We analyze the effect of various combinations of state and national emissions policies on national emissions of a global pollutant, specifically, greenhouse gas emissions. We highlight the effect of unintended increases in out-of-state emissions on the efficacy of overlapping state policies. We show that emission taxes do not necessarily prevent a completely offsetting increase in out-of-state emissions when states add a state-level emissions tax to the national emissions tax. In particular, states small relative to their market will be unable to reduce national emissions with a state-level CO2 tax or a system of tradable permits. However, under a national cap-and-trade regime that allows states to be carved out, a state of any size can reduce national emissions by setting a tighter state cap. This combination yields a lower total cost than the equivalent combination of national and state CO2 taxes (if one exists) but increases the cost to consumers outside the market. [ABSTRACT FROM AUTHOR]

Renewable fuel standards, low carbon fuel standards, and ethanol subsidies are popular policies to incentivize ethanol production and reduce emissions from transportation. Compared to carbon trading, these policies lead to large shifts in agricultural activity and unexpected social costs. We simulate the 2022 Federal Renewable Fuel Standard (RFS) and find that energy crop production increases by 39 million acres. Land-use costs from erosion and habitat loss are between $277 and $693 million. A low carbon fuel standard (LCFS) and ethanol subsidies have similar effects while costs under an equivalent cap and trade (CAT) system are essentially zero. In addition, the alternatives to CAT magnify errors in assigning emissions rates to fuels and can over or under-incentivize innovation. These results highlight the potential negative effects of the RFS, LCFS and subsidies, effects that would be less severe under a CAT policy. [ABSTRACT FROM AUTHOR]

We investigate the economic factors that drive electricity risk premia in the European emissions constrained economy. Our analysis is undertaken for monthly baseload electricity futures for delivery in the Nordic, French and British power markets. We find that electricity risk premia are significantly related to the volatility of electricity spot prices, demand and revenues, and the price volatility of the carbon dioxide (CO2) futures traded under the EU Emissions Trading Scheme (EU ETS). This finding has significant implications for the pricing of electricity futures since it highlights for the first time the role of carbon market uncertainties as a main determinant of the relationship between spot and futures electricity prices in Europe. Our results also suggest that for the electricity markets under scrutiny futures prices are determined rationally by risk-averse economic agents. [ABSTRACT FROM AUTHOR]

The impact and efficacy of a cap-and-trade regulation on the electric power industry depend on interactions of demand elasticity, transmission network, market structure, and strategic behavior of generation firms. This paper develops an equilibrium model of an oligopoly electricity market in conjunction with a Cap-and-Trade emissions permits market to study such interactions. The concept of conjectural variations is proposed to account for imperfect competition in the permits market. We demonstrate the model using a WECC 225-bus system with a detailed representation of the California market. In particular, we examine the extent to which permit trading strategies affect the market outcome. We find that a firm with more efficient technologies can employ strategic withholding of permits, which allows for its increase in output share in the electricity market at the expense of other less efficient firms. [ABSTRACT FROM AUTHOR]

The Energy Modeling Forum 24 study included a set of policy scenarios designed to compare economy wide market-based and sectoral regulatory approaches of potential U.S. climate policy. Models from seven teams participated in this part of the study assessing economy-wide cap-and-trade climate policy and sectoral policies in the transportation and electric sector in terms of potential greenhouse gas emissions reductions, economic cost, and energy systems implications. This paper presents an overview of the results from the U.S. policy scenarios, and provides insights into the comparison of results from the participating models. In particular, various metrics were used to compare the model results including allowance price, the efficient frontier, consumption loss, GDP loss, and equivalent variation. We find that the choice of economic metric is an important factor in the comparison of model results. Among the insights, we note that the carbon price should cautiously be considered when other non-cap sectoral policies affecting emissions are assumed in tandem. We also find that a transportation sector policy is consistently shown to be inefficient compared to an economy-wide capand-trade policy with a comparable level of emissions reductions. [ABSTRACT FROM AUTHOR]

Following the Kyoto protocol and the European Union climate policies energy plants exceeding 20 MW capacity have been part of the EU's emissions-trading scheme (ETS) since 2005. However, the users of renewable fuels will not pay for tradable carbon allowances. Advanced energy production technologies enable the switch from fossil fuels to renewable wood fuels, and therefore wood fuels may constitute a competitive substitute for fossil fuels, especially if the price of allowances is relatively high. In this context we analyzed plant level Finnish data from years 2005-2008 with mixed models. Econometric equations were specified and estimated for the wood-fossil fuel ratios, and for the fossil fuel cost shares. We found that the EU ETS has short term impacts on the fuel mixes of the energy plants. The elasticity of substitution between fossil and non-fossil fuels is larger under the ETS. Large plants have adjusted their fuel technology choices toward more wood using and fuel price sensitive forms. The size of energy plants and heterogeneity among them across the industries determine the extent of fuel substitution. However plants' regional locations have limited roles in the interfuel flexibility. [ABSTRACT FROM AUTHOR]

Tradable allowances have received considerable attention in recent years. One emerging issue is their interaction with electricity markets. This paper extends the model of Allaz and Vila (1993) by incorporating emissions trading with forward and spot markets for electricity. We focus on the effects of strategic forward position and initial allowances allocation on the equilibrium outcomes. We find that firms with a dirty portfolio would have stronger incentives to take a long position in the forward market to raise the electricity price. Increasing the amount of allowances assigned to clean firms leads to a reduction in electricity and allowance prices. [ABSTRACT FROM AUTHOR]

This study uses a general equilibrium model to compare environmental and economic outcomes of two policies: (1) a tax credit of 10 percent of the price of household capital that is 20 percent more energy efficient than its unsubsidized counterpart, assuming half of new household investment qualifies for the credit; and (2) a tax starting at $30 ($2007) per metric ton of CO2 rising five percent annually. By 2040, the carbon tax and tax credit reduce emissions by about 60 1.5 percent, respectively. Assuming other countries impose no carbon price, we find that although the carbon tax reduces U.S. GDP, it improves US. household welfare because it reduces world fuel prices, strengthens US. terms of trade, and makes imports cheaper The revenue neutral tax credit reduces welfare but boosts U.S. GDP growth slightly a(first. Both policies have similar impacts on the federal budget, but of opposite signs. [ABSTRACT FROM AUTHOR]

This paper assesses the impact of French policies for residential space-heating energy consumption, both enacted (tax credits for the purchase of energy efficient durables, soft loans for retrofitting actions, stringent building codes) and anticipated (carbon tax, retrofitting obligation). It uses a hybrid energy-economy model incorporating specific features of energy conservation, notably the rebound effect and some "barriers" to energy efficiency such as split incentives and imperfect information. Forward-looking simulations show that (i) stand-alone policies improve the energy efficiency of the building stock but, with the exception of carbon tax, generate a rebound effect; (ii) interactions among instruments are roughly additive; (iii) a combination of all policies fails to meet Government conservation targets. [ABSTRACT FROM AUTHOR]

The multi-sector end-use energy model E3MC was used to analyze the energy and greenhouse gas emissions impact of adding a carbon tax to efficiency improvement standards for the residential sector in Canada and the USA. Compared to standards alone, the addition of the tax led to further residential emission reductions in Canada, but attenuated the residential emission reductions in the USA. Examination of the relative residential electricity:natural gas prices demonstrated that the different country impacts were due to an increase in relative prices in the USA, but a decrease in relative prices in Canada that led to opposite shifts in preference for electricity over natural gas in the residential sector. Markedly different impacts of the carbon tax on electricity prices was due to the predominance of hydroelectric power in Canada and coal-fired electric generation in the USA. [ABSTRACT FROM AUTHOR]

Carbon taxes have been shown to be the most cost-effective instrument for carbon abatement in a second-best world characterized by non-energy-related market failures such as pre-existing taxes. We show, however, that both subsidies for energy efficiency improvements and fuel standards can be good policy instruments in a third-best world in which consumers underinvest in energy service capital. In this framework, subsidies and standards can both reduce emissions and increase welfare. We show additionally that still further emission reductions are attainable by combining these instruments with a CO, tax. Two versions of a CGE model for Switzerland are used to compare five policy proposals. First, we examine the transitional impacts of the different policies using the dynamic CEPE model. The same policies are then implemented within a static representation of the model, which includes a bottom-up representation of light-duty vehicles and allows a more detailed examination of the role of fuel standards and subsidies for energy-efficient vehicles. [ABSTRACT FROM AUTHOR]

Standards, subsidies, and carbon taxes are among the measures often considered to reduce energy consumption and carbon dioxide (CO2) emissions in the buildings sector. Using a modeling system developed by the U.S. Energy Information Administration, residential and commercial sector standards and subsidies were each modeled with and without a carbon tax to determine if a multi-policy approach would be redundant. A separate case examining a carbon tax was also completed for comparison. Between the two equipment-based policies, subsidies achieved more energy and CO2 emissions reductions at less cost to consumers, as incremental investment costs were shifted to the government. When either of the equipment-based policies was combined with a carbon tax, their energy- and carbon-reducing effects were more additive than redundant. [ABSTRACT FROM AUTHOR]

Compared with economically ideal policies, actual limits on global warming gases are likely to be "second-best" in many ways. Most studies focus on "second-best" approaches such as delaying emission controls in developing countries, constraining international emission trading, or regulating gases piecemeal by sector rather than equally across the whole economy. We show that another second-best approach--lacking of regulatory credibility--imposes up to six times the extra costs on the economy when compared with all other "second-best" factors combined. When regulatory rules are not believable then firms and other agents become short-sighted and unable to make optimal investments in research and development as well as long-lived technologies. Although analysts have largely ignored this issue, low credibility is commonplace when governments tackle international problems because international institutions such as treaties are usually weak and fickle. Governments can help solve credibility problems with strategies such as "pre-committing" regulations into domestic law that is usually more credible than international commitments. We show that China, for example, can justify unilateral, emission controls because such pre-commitment would encourage Chinese firms to invest with a clearer eye to the future. [ABSTRACT FROM AUTHOR]

This paper focuses on two specific issues in the design of a domestic cap and trade program for GHGs - whether the cap should be located upstream or downstream, and whether trading alone will suffice to achieve the desired reduction in GHGs or will need to be supplemented with additional regulatory measures. The paper argues for a downstream cap accompanied by measures such as a renewable portfolio standard, efficiency standards for vehicles, appliances and buildings, and a low carbon fuel standard. For this argument, it is necessary to address both the theory and the empirical evidence of emission trading. After reviewing the theory, the paper examines the actual experience in the U.S. with emission trading for SO2, to see whether the assumptions used in the theory actually applied in practice. What actually happened deviated in several important respects from what was supposed to happen according to the conventional theorizing. The design of a cap and trade program for GHG is then discussed, first considering the similarities between the past regulation of air pollutants and the challenge posed by GHGs, and then making the case for a downstream cap and complementary policies. [ABSTRACT FROM AUTHOR]

As with other commodity markets, markets for trading pollution permits have not been immune to market power concerns. In this paper, I survey the existing literature on market power in permit trading but also contribute with some new results and ideas. I start the survey with Hahn's (1984) dominant-firm (static) model that I then extend to the case in which there are two or more strategic firms that may also strategically interact in the output market, to the case in which current permits can be stored for future use (as in most existing and proposed market designs), to the possibility of collusive behavior, and to the case in which permits are auctioned off instead of allocated for free to firms. I finish the paper with a review of empirical evidence on market power, if any, with particular attention to the U.S. sulfur market and the Southern California NOx market. [ABSTRACT FROM AUTHOR]

The present paper aims to reliably depict the impact of the European Union Emissions Trading Scheme (EU ETS) on Spain under different assumptions about the industries involved. Prior analyses, based either on highly aggregated macroeconomic or specific electricity industry models, have been limited in degree of detail or scope. Two types of modeling were combined in the present study: general equilibrium was used to assess the impact on different industries and to explain cross-industry changes, and partial equilibrium to suitably model the complex and crucial electricity system. Combining and interrelating these two models yields the effects on price, carbon dioxide (CO2) emissions and distributional patterns in Spain of both the current policy and of an alternative in which all industries take part in the EU ETS. Since Spain is a key participant in this scheme, the conclusions and policy implications stemming from this paper are relevant to and useful for post-Kyoto arrangements. [ABSTRACT FROM AUTHOR]

This paper exploits a little used data resource within the central registry of the European Union's Emissions Trading System (EU ETS) to analyze cross border trading and inter-year borrowing during the first trading period (2005-2007). Cross-border flows were small in the aggregate but remarkably frequent in matching allowance deficits and surpluses at the installation level throughout the EU. These data also indicate that a novel feature of the EU ETS-the ability to borrow allowances from the forward allocation to satisfy current compliance requirements-was also used. These data provide evidence that the precondition of efficient abatement in a cap-and-trade system-widespread use of trading opportunities-was present in the first period of the EU ETS. [ABSTRACT FROM AUTHOR]

Most models that are used to analyze support policies for renewable electricity neglect important market features like oligopolistic behavior, emission trading, and restricted cross-border transmission capacities. We use a quantitative electricity market model that accounts for these aspects and decompose the impact of the German Feed-in tariff (FIT) into two frequently counteracting effects: a substitution effect and a permit price effect. We find that the total effect of the policy increases the German consumer price slightly by three percent, while the producer price decreases by eight percent. In addition, emissions from electricity generation in Germany are reduced by eleven percent but are hardly altered on the European scale. Finally, it turns out that price-cost margins of almost all firms are increased by the FIT, while nonetheless, the profits of firms are significantly lowered unless the firms combine relatively carbon-intensive production with a weak connection to the German grid. [ABSTRACT FROM AUTHOR]

Tradable permit programs allow firms greater flexibility in reducing emissions than command-and-control regulations and encourage firms to use cost abatement options, including small-scale modifications to capital equipment. This paper shows that firms have extensively modified capital equipment in the Nitrogen Oxides Budget Trading Program, which covers power in the eastern United States. The empirical strategy uses geographic and temporal features of the program to estimate counterfactual emissions, finding modifications have reduced emission rates by approximately 10-15 percent. modifications would not have occurred under command-and-control regulation and have reduced regulatory costs. [ABSTRACT FROM AUTHOR]

Volatile fuel prices affect both the cost and price of electricity in a liberalized market. Generators with the price-setting technology will face less risk to their profit margins than those with costs that are not correlated with price, even if those costs are not volatile. Emissions permit prices may respond to relative fuel prices, further increasing volatility. This paper simulates the impact of this on generators' profits, comparing an emissions trading scheme and a carbon tax against predictions for the UK in 2020. The carbon tax reduces the volatility faced by nuclear generators, but raises that faced by fossil fuel stations. Optimal portfolios would contain a higher proportion of nuclear plant if a carbon tax was adopted. [ABSTRACT FROM AUTHOR]

By recognizing the importance of non-CO2 gases mitigation for climate change abatement, modeling study for multi-gas scenarios was conducted by using IPAC model. This is also part of EMF-21 study for comparing the cost for CO2 mitigation and multi-gas mitigation. The main objective of this analysis is to evaluate the international potential and costs of non-CO2 greenhouse gas abatement. Three scenarios were defined by EMF-21 study including modeler reference, CO2 only mitigation scenario and multi-gas mitigation scenario. By comparing the results for the three scenarios, it is found that there is quite large potential for non-CO2 mitigation potential. Multi-gas mitigation policies could have lower cost compared with CO2 only mitigation policies. In order to reach same mitigation target level of GHG emission, there could be 30% lower carbon tax rate for multi-gas mitigation, and therefore GDP loss could be reduced by 23% in 2100. Multi-gas mitigation could give less pressure for energy system to transform. [ABSTRACT FROM AUTHOR]

When conducting a multi-gas analysis, there are distinct advantages in moving from concentrations to radiative forcing. With the former, it is customary to use Global Warming Potentials (GWPs) for making tradeoffs among greenhouse gases. A number of studies have shown the arbitrariness of this approach and have argued that tradeoffs should be based on the contribution of each gas to achieving a particular target. Focusing on radiative forcing bypasses the need to rely on GWPs and provides for tradeoffs among gases based on their relative value. [ABSTRACT FROM AUTHOR]

Economic analyses of climate change policies frequently focus on reductions of energy-related carbon dioxide emissions via market-based, economy-wide policies. The current course of environment and energy policy debate in the United States, however, suggests an alternative outcome: sector-based and/or inefficiently designed policies. This paper uses a collection of specialized, sector-based models in conjunction with a computable general equilibrium model of the economy to examine and compare these policies at an aggregate level. We examine the relative cost of different policies designed to achieve the same quantity of emission reductions. We find that excluding a limited number of sectors from an economy-wide policy does not significantly raise costs. Focusing policy solely on the electricity and transportation sectors doubles costs, however, and using non-market policies can raise cost by a factor often. These results are driven in part by, and are sensitive to, our modeling of pre-existing tax distortions. [ABSTRACT FROM AUTHOR]

This paper compares both the main physical options and the principal policy instruments to realize a deep cut in carbon dioxide emissions necessary to control global climate change. A top-down energy-economy model is used that has three emission reduction options: energy savings, a transition towards less carbon-intensive or non-carbon energy resources, and the use of carbon dioxide capture and storage technology. Five policy instruments carbon taxes, fossil fuel taxes, non-carbon (renewable) energy subsidies, a portfolio standard for the carbon intensity of energy production, and a portfolio standard for the use of non-carbon (renewable) energy resources - are compared in terms of costs, efficiency and their impact on the composition of the energy supply system. One of our main conclusions is that a carbon intensity portfolio standard, involving the recycling of carbon taxes to support renewables deployment, is the most cost-efficient way to address the problem of global climate change. A comprehensive introduction of the capture and storage of carbon dioxide would contribute to reducing the costs of climate change control, but would not obviate the large-scale need for renewables. [ABSTRACT FROM AUTHOR]

This paper envisages endogenous technical change that results from the interplay between the economic growth engine, consumption, technology and localization patterns. We perform numerical simulations with the recursive dynamic general equilibrium model Imaclim-R to study how modeling induced technical change affects costs of CO2 stabilization, Imaclim-R incorporates innovative specifications about final consumption of transportation and energy to represent critical stylized facts such as rebound effects and demand induction by infrastructures and equipments. Doing so brings to light how induced technical change may not only lower stabilization costs thanks to pure technological progress, but also trigger induction of final demand--effects critical to both the level of the carbon tax and the costs of policy given a specific stabilization target. Finally, we study the sensitivity of total stabilization costs to various parameters including both technical assumptions as accelerated turnover of equipments and non-energy choices as alternative infrastructure policies. [ABSTRACT FROM AUTHOR]

Estimates of marginal abatement costs for reducing carbon emissions derived from major economic-energy models vary widely. Controlling for policy regimes we use meta-analysis to examine the importance of structural modeling choices in explaining differences in estimates. The analysis indicates that particular assumptions about perfectly foresighted consumers and Armington trade elasticities generate lower estimates of marginal abatement costs. Other choices are associated with higher cost estimates, including perfectly mobile capital, inclusion of a backstop technology, and greater disaggregation among regions and sectors. Some features, such as greater technological detail, seem less significant. Understanding the importance of key modeling assumptions, as well as the way the models are used to estimate abatement costs, can help guide the development of consistent modeling practices for policy evaluation. [ABSTRACT FROM AUTHOR]

The objective of this paper is to assess the likely allocation effects of the current climate 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. [ABSTRACT FROM AUTHOR]

This paper assesses the economic impact of the European Emissions Trading Scheme Directive on the Spanish electricity sector. Although some other studies have been carried out before, our approach uses a more detailed model for the Spanish electricity sector, which provides more realistic results both for the expected price of the carbon allowance and for the evolution of electricity prices, installed power and firms' revenues in Spain. Results show that the implementation of the Directive will result in a significant increase of electricity prices, and also, due to the Spanish pricing system, in a large increase in the revenues of generating firms, unless the regulator intervenes. Results also show the different implications of different assignment methods. This is especially relevant currently given that most European countries are approving their national assignment plans for 2005-07 and have to revise them for 2008. [ABSTRACT FROM AUTHOR]

Reimplementation of an EU-wide emissions trading system by means of National Allocation Plans is at the core of the European environmental policy agenda. EU Member States must allocate their national emission budgets under the EU Burden Sharing Agreement between energy-intensive sectors that are eligible for European emissions trading and the remaining segments of their economies that will be subject to complementary domestic emission regulation. We show that such hybrid emission regulation may lead to substantial excess costs compared to a comprehensive emissions trading system covering all segments of the economy. Furthermore, the hybrid system associated with the current design of National Allocation Plans is likely to discriminate against sectors that are not part of the emissions trading scheme. The interested reader can make use of a web-based interactive simulation model in order to specify and evaluate alternative settings of the EU emissions trading system. [ABSTRACT FROM AUTHOR]

In this paper we explore whether efficiency gains obtained by developing countries participation in emission trading could offset the economic risks that would be incurred by taking on binding commitments when future emissions are uncertain. Such commitments would allow developing countries to participate in emissions trading, which has significantly lower transaction costs than the present Clean Development Mechanism (CDM). However, because future emissions cannot be known, commitments can become more costly for the developing countries than expected. Using a dynamic computable general equilibrium model, we analyse whether the efficiency gains obtained by participating in emissions trading can offset this risk. We find that the efficiency gains that can be obtained by developing countries might not be very large compared to the risks they incur. Developing countries might therefore have good reasons not to embrace binding commitments in order to participate in "cap and trade" emissions trading. [ABSTRACT FROM AUTHOR]

The German energy industries will be subjected to regulation of network access enforced by a sector-specific regulator. Whereas the gas industry broke the regime of negotiated third party access, in electricity nTPA 'worked', although it clearly resulted in a margin squeeze. The government currently discusses whether to use rate-of-return or incentive regulation, to allow ex ante approval of charges, and the length of the regulatory lag. Close examination suggests that generation capacity still is adequate, but in the longer term there is reason to be alert. The regulatory changes and emission trading system can both contribute to supply security by increasing investment. [ABSTRACT FROM AUTHOR]

Economic efficiency is a major argument for international emissions trading under the Kyoto Protocol. We show that permit trading can be welfare decreasing for countries, even though private trading parties benefit. The result is a case of "immiserizing" growth in the sense of Bhagwati where the negative terms of trade and tax interaction effects wipe out the gains from trading. Simulation and welfare decomposition results based on a CGE model of the global economy show that under EU-wide trading countries that are net permit sellers generally lose, due primarily to the existence of distortionary energy taxes. [ABSTRACT FROM AUTHOR]

Assesses the role played by market reforms in shaping the level and composition of production, energy use, and carbon emissions in China. Historical background on market reforms implemented in China from 1978 to 2003; Examination of the implications of eliminating state-directed allocation of capital; Possible consequences of China's transition to a market economy.

Presents a study which examined market power in international carbon emissions trading. Outline of trading situations likely to be faced by countries engaging in intergovernmental carbon emission quota trade; Factors which affect the ability of large countries to exert market power; Discussion on cost-effectiveness in international climate treaties aiming at substantial reductions of greenhouse gas emissions.

Presents a study that compared a system of differential carbon dioxide taxes, exemplified by the Norwegian carbon tax regime, to uniform carbon taxation and grandfathered tradeable emission permits. Anticipate welfare effects; Basic model features; Results of the study.