Nationally Determined Contributions (NDCs) to decarbonise the world: A transitional impact evaluation

Abstract

Countries have submitted their Nationally Determined Contributions (NDCs) to reduce greenhouse gas emissions beyond 2020 following the Paris Agreement. We consider these targets by using the climate change policy version of the GTAP-E model of the world economy to analyse economic and environmental outcomes in the transition from domestic settings to broad international linkages for selected major emitting regions. We have obtained several insights. First, developing nations present relatively low emission abatement costs compared to developed countries. China and India are also major emitters with substantial possibilities to create carbon credits for selling to other regions. Second, any forms of international carbon markets are confirmed to have lower costs for a linked global system than domestic-solely schemes. Third, the participation of China and India in an international carbon market particularly drives down the carbon price (to US$1.62 per tonne of CO_2-e) and economic costs of the system. Real GDP of countries in such a linkage will only decline by 0.1%, while the electricity sector in most countries only experiences 1% loss in their output levels. The US, European Union and Australia particularly benefit from the participation of China and India in the carbon linkage by significantly lowering costs on their economies. Finally, it is also found that not all international emission linkages benefit low abatement cost countries if they do not have suitable strategies to recycle their net carbon trading revenues.