Environmental and economic impacts of a joint emissions trading scheme

Abstract

This paper examines the environmental and economic effects of six (European Union, Switzerland, Norway, New Zealand, South Korea and Kazakhstan) domestic national Emissions Trading Schemes (ETSs). We have extended the analysis to an international ETS among these schemes since their governments have shown an ambition to obtain a linked market and have been carrying out negotiations for many years towards that goal. We incorporated non-CO2 emissions into the GTAP-E model database and extended the model to estimate the impact of domestic ETSs and an international ETS. Our analysis provides detailed projections regarding emissions permits allocation and emissions fluctuations. The results indicate that emissions trading volumes are very small in both domestic and international ETS scenarios since Norway, Switzerland, New Zealand and Kazakhstan economies are very small compared with the European Union and South Korea. In addition, the results in the international ETS scenario do not differ greatly from domestic trading scenario. However, results indicate that emissions abatement takes place with the lowest cost through an international ETS setting.