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The Hedge value of international emissions trading under uncertainty
Abstract
This paper estimates the value of international emissions trading, focusing on a here-to-fore neglected component; its value as a hedge against uncertainty. Much analysis has been done of the Kyoto Protocol and other potential international greenhouse gas mitigation policies comparing the costs of achieving emission targets with and without trading. These studies often show large cost reductions for all Parties under trading compared to a no trading case. We investigate the welfare gains of including emissions trading in the presence of uncertainty in economic growth rates, using both a partial equilibrium model based on marginal abatement cost curves and a computable general equilibrium model. We find that the hedge value of international trading is small relative to its value in reallocating emissions reductions when the burden sharing scheme does not resemble a least cost allocation. We also find that the effects of pre-existing tax distortions and terms of trade dominate the hedge value of trading. We conclude that the primary value of emissions trading in international agreements is as a burden sharing or wealth transfer mechanism and should be judged accordingly.
... In fact, research employing general equilibrium models has already shown that IET would not necessarily benefit all participants. 1 Examples of such analysis include Ishikawa et al. (2012), Babiker et al. (2004), and Webster et al. (2010). For example, Ishikawa et al. (2012) conducted a theoretical analysis to demonstrate that if the introduction of IET causes the terms of trade to deteriorate significantly, participation in IET would actually be harmful. ...
... Alternatively, Babiker et al. (2004) and Webster et al. (2010) focused on two types of effect: a "terms-of-trade effect" and a "tax-interaction effect in energy markets". Using computable general equilibrium (CGE) models, these studies found that IET would not necessarily be beneficial for all regions. ...
... In this model, labor supply is determined exogenously and wage rate changes flexibly. This type of model has frequently been used for climate policy CGE analysis; for example, the MIT EPPA model (Paltsev et al. 2005;Webster et al. 2010) and the OECD ENV-Linkages model (Chateau and Burniaux 2008;OECD 2009). In FLAB, wages always adjust so that the demand and supply of labor are equalized. ...
Using a multi-region, multi-sector computable general equilibrium model, this paper analyzes the effects of international emissions trading (IET) with a focus on labor market distortions. We construct four separate models with several different labor market specifications: (1) a model without labor market distortions; (2) a model with taxinteraction effects in the labor market; (3) a model with a minimum wage; and (4) a model in which a wage curve determines wages. We use these models to analyze how the effects of IET change according to model specification. The main results from the analysis are as follows. First, we found that IET generates gains for all participants in the model without labor market distortions. Second, even in the models with labor market distortions, importers of emissions permits are highly likely to benefit. Conversely, we show that the possibility of a welfare loss from IET is not as small for exporters of permits. In particular, in the minimum wage and wage curve models, we found that the exporters of emissions permits are likely to be disadvantaged. However, this also depends on the region in question. For example, China is likely to suffer under IET, whereas Russia is likely to benefit. Finally, if we implement policies to alleviate labor market distortion simultaneously with emissions regulation, all regions receive benefit from IET.
... After linking, permit-buying regions will experience lower carbon prices and reduce negative tax interaction effects, thus ameliorating the pre-existing distortion. Previous numerical CGE studies have shown that when the preexisting tax distortion is large, it could dominate the direction of welfare changes (Babiker et al., 2004;Webster et al., 2010). ...
... Li and Huang (2005) use a CGE model to assess the potential 'transfer' impact of the international emissions trading market. Moreover, as Webster et al. (2010) explains, the magnitude of the terms of trade effect also hinges on factors such as the share of trade in a region's GDP and the substitutability between domestic and imported goods as well as how far the autarky carbon prices are from the uniform carbon price in an integrated carbon market. Nevertheless, Webster et al. (2010) demonstrates the impact of terms of trade effect can be large as supported by a strong correlation between terms of trade gain and welfare gain in a numerical simulation. ...
... Moreover, as Webster et al. (2010) explains, the magnitude of the terms of trade effect also hinges on factors such as the share of trade in a region's GDP and the substitutability between domestic and imported goods as well as how far the autarky carbon prices are from the uniform carbon price in an integrated carbon market. Nevertheless, Webster et al. (2010) demonstrates the impact of terms of trade effect can be large as supported by a strong correlation between terms of trade gain and welfare gain in a numerical simulation. ...
The Chinese government intends to upgrade its current provincial carbon emission trading pilots to a nationwide scheme by 2015. This study investigates two of scenarios: separated provincial markets and a linked inter-provincial market. The carbon abatement effects of separated and linked markets are compared using two pilot provinces of Hubei and Guangdong based on a computable general equilibrium model termed Sino-TERMCo2. Simulation results show that the linked market can improve social welfare and reduce carbon emission intensity for the nation as well as for the Hubei-Guangdong bloc compared to the separated market. However, the combined system also distributes welfare more unevenly and thus increases social inequity. On the policy ground, the current results suggest that a well-constructed, nationwide carbon market complemented with adequate welfare transfer policies can be employed to replace the current top-down abatement target disaggregation practice.
... To judge whether an institutional system is worth promoting should not only consider its possible distortion but also consider whether its economic consequences meet the external constraints of the real environment. The biggest advantage of the CETS lies in its cost transfer and price incentive mechanism (Webster et al., 2010;Zhu et al., 2018;Arimura and Abe, 2021;Boroumand et al., 2022;Ma et al., 2022). The CETS enables quotas to have property rights and flow properties, and economic subjects with "environmental protection" advantages will gain a relatively advantageous position in the market, so that they can transfer the "compliance costs" brought by environmental regulations to disadvantaged enterprises by quota trading and obtain additional economic returns (polluter pays). ...
China’s emissions trading system is often cited as a model for developing countries using market-based means to solve pollution problems, but few have objectively assessed the solution from a productivity perspective. Therefore, in this study, the green total factor productivity (GTFP) of 281 prefecture-level cities was calculated by using the DEA–Malmquist method, and the policy effects were evaluated by setting up quasi-natural experiments. The results show that the carbon emissions trading system has a positive contribution to GTFP; when facing a more compatible carbon trading system, enterprises will choose two paths: innovation compensation and industrial upgrading to improve GTFP, so as to get rid of the cost constraints caused by carbon emission control; the policy effect of the carbon emissions trading system varies significantly in different regions. In the economically developed eastern region, the effect of policy implementation is relatively significant, while the effect of policy implementation in the western region is not significant. Further analysis shows that as a market-based environmental policy, the incentive effect of the carbon trading system relies on a perfect market system. This study provides empirical evidence and policy enlightenment for developing countries to build and improve the emissions trading system.
... Another uncertain general equilibrium effect is the terms-of-trade effect, which could either be positive due to higher export prices (Webster et al., 2010) or negative (Babiker et al., 2004), following the theory of immiserising growth (Bhagwati, 1958;Bhagwati, 1968). Changes in the real exchange rate may also negatively affect a NPS. ...
China is moving from regional Emissions Trading Schemes (ETSs) to a nation-wide ETS. Although a larger ETS will be more efficient, the literature warns that it could make net permit selling regions worse off. We use a CGE model to simulate the linking of two provincial ETSs, namely those of Hubei and Guangdong. Our simulations suggest a trade-off between efficiency and equity as the richer regions (typified by Guangdong) will benefit from linking but the poorer regions (typified by Hubei) may lose. This is because poorer provinces in China tend to be more emissions intensive and therefore likely to face a carbon price rise upon linking, the costs of which may be only partially offset by trading, if indeed trading is permitted. We show this, and explain why it is the case by improving on the stylized model suggested by Adams and Parmenter (2013). Following Atkinson (1970), we find that worsened equity from linking may dominate improved efficiency, thus reducing aggregated welfare. We advise more generous caps to be given to more emissions intensive and less developed regions. If so, as suggest our simulation results, a Pareto-improvement could be attainable.
... When the demands for generation, processing, heating and/or demanding capacities cannot be met by the residual facilities, facility expansions are required. Meanwhile, fuel consumptions inevitably result in an environmental problem, generation of GHG emissions (mainly CO 2 ), which can be mitigated through a series of management and technology measures (Chan et al. 2012;Farrell et al. 2006;Webster et al. 2010). These measures include (a) encouraging utilization of renewable energy resources; (b) introducing CO 2 capture-storage technologies and facilities; (c) implementing carbon trade in regional and/or international carbon markets. ...
Regional energy-environment systems management become more and more focused on greenhouse gas emission control through improving energy efficiency and efficiently managing energy activities. Inexact linear programming models are developed for supporting the management. Due to the weather/climatic variations in the future, electricity demands and renewable power generations (in the right/left hand sides of constraints) have random characteristics. Moreover, an overall satisfactory level needs to be quantified based on multiple chance constraints. Therefore, this study improved upon traditional chance-constrained programming and interval linear programming, and developed an interval joint-probabilistic two-side chance-constrained programming (IJTCP) approach. A sufficient but non-equivalent linearization form of the model was proposed so that the inexact model could be solved through the two-step solution algorithm. The IJTCP was then applied to an integrated energy-environment systems management under dual uncertainties. The application demonstrated that the IJTCP can effectively address the uncertainties presented as not only interval numbers and two-side multi-randomness but also the reliability of satisfying the entire system constraints. The application implicated that the IJTCP approach can be applied to other energy-environment management problems under dual uncertainties.
... On the global scale, Springer [5] found a wide range of variation among models in terms of carbon emissions trading price and trading amounts under the Kyoto Protocol, and pointed out that it is challenging to give an accurate projection of emissions trading price with existing models [6]. Webster et al. evaluated the value of the global emissions trading market under different burden-sharing schemes and uncertain economic growth [7]. Zhang et al. [8] found that an international ETS regime helps to reduce mitigation costs and GDP loss by countries with high mitigation costs such as U.S., Japan and South Korea, while industry competitiveness of credits exporting countries like China is reduced. ...
This study evaluates the economic impact of achieving China's Intended Nationally Determined Contributions (INDCs) through emissions trading scheme (ETS) and renewable energy policy, using a Computable General Equilibrium (CGE) model. We explored the behavior of different sectors in the carbon market, carbon trade amount, carbon price and the economic impact of an emissions cap and trade on the employment and GDP. The results demonstrate that the electricity and aviation sectors have relatively higher mitigation costs and tend to be the main buyers of the carbon credits, whereas chemicals, nonmetal production, iron and steel, paper and other manufacturing sectors have relatively lower mitigation costs and tend to be the main sellers. Carbon trading price and market scale are closely related to various factors such as the emissions quota allocation scheme among sectors, coverage of participating sectors and the level of renewable energy development. Emission trading is also confirmed to be an economically efficient approach that contributes to the achievement of emission reduction targets with less economic cost. In order to make full use of this approach, policy maker should assign an appropriate emissions quota allocation scheme, extend coverage of various sectors and promote the expansion of low-carbon technologies such as renewable energy.
... Another uncertain general equilibrium effect is the terms-of-trade effect, which could either be positive due to higher export prices (Webster et al., 2010) or negative (Babiker et al., 2004), following the theory of immiserising growth (Bhagwati, 1958;Bhagwati, 1968). Changes in the real exchange rate may also negatively affect a NPS. ...
Environmental protection and carbon emission reduction play a crucial role in the sustainable development procedure. However, the environmental efficiency analysis and evaluation based on the traditional data envelopment analysis (DEA) cross model is subjective and inaccurate, because all elements in a column or a row of the cross evaluation matrix (CEM) in the traditional DEA cross model are given the same weight. Therefore, this paper proposes an improved environmental DEA cross model based on the information entropy to analyze and evaluate the carbon emission of industrial departments in China. The information entropy is applied to build the entropy distance based on the turbulence of the whole system, and calculate the weights in the CEM of the environmental DEA cross model in a dynamic way. The theoretical results show that the new weight constructed based on the information entropy is unique and optimal globally by using the Monte Carlo simulation. Finally, compared with the traditional environmental DEA and DEA cross model, the improved environmental DEA cross model has a better efficiency discrimination ability based on the data of industrial departments in China. Moreover, the proposed model can obtain the potential of carbon emission reduction of industrial departments to improve the energy efficiency.
... The globalist approach has been criticized for several deficiencies: the large number of actors makes negotiations slow and the need for consensus leads to a lowest-common-denominator problem; international organizations are too weak to enforce an agreement so closely tied to industrial competitiveness; a single agreement cannot adequately resolve heterogeneity in national preferences; past success in globally addressing other international environmental problems, such as ozone depletion, are poor analogies to climate change (Victor et al., 2005;Prins and Rayner, 2007). On the other hand, the disaggregated approach is criticized for being too slow; unlikely to overcome free-riding; less likely to represent the concerns of the most vulnerable; lacking essential coordination mechanisms; and not making use of the institutional capacity, developed over two decades, for supporting, monitoring and enforcing an agreement (Schellnhuber, 2007;Flachsland et al., 2009;Webster et al., 2010). ...
... Another important but uncertain general equilibrium effect is the terms-of-trade effect, which could be positive due to higher export prices (Webster et al., 2010) or negative (Babiker et al., 2004), following the theory of immiserizing growth (Bhagwati, 1958, Bhagwati, 1968. Changes in the real exchange rate may also negatively affect a NPS. ...
The contribution of this thesis lies in its original application of Computable General Equilibrium (CGE) modelling to some of the most important climate change mitigation challenges China faces, and some of the tools it could use to overcome them. The original findings of the thesis are summarized below. Overall, they underline the need for China to implement new methods, carefully designed, to reduce emissions. Chapter 2 focuses on the challenge of China’s economic structure, and the tool of restructuring. A two-stage estimation process is implemented within CHINAGEM, a dynamic general equilibrium model of the Chinese economy, to study the potential contribution of successful economic rebalancing – from investment to consumption, and from industry to services – to reducing the country’s carbon dioxide emissions. The results show that economic rebalancing alone may lead to 17 per cent reduction in the emissions intensity of GDP between 2012 and 2030. This estimate is higher than existing partial equilibrium estimates in the literature, and points to the importance of economic rebalancing from an environmental perspective. Chapter 3 focuses on the challenge of China’s heavy level of coal dependency, and the tool of improving the efficiency of the use of coal in power generation. The analysis, again based on CHINAGEM, suggests that this will be a less important contributor to mitigation in the future than in the past. The pace and importance of improvements in coal-fired power generation efficiency is projected to halve mainly because, after the progress already made, China’s current coal-fired power generation efficiency is already close to the world’s best practice, but also because slower growth in electricity demand reduces the scope for expanding the generation fleet with new world-class plant. The chapter also shows that, going forward, switching to renewable energy and structural rebalancing will be more important for achieving China’s emissions targets than improving coal-fired power generation efficiency. However, fully achieving China’s 2020 emissions intensity reduction target will require a combination of all three. Chapter 4 focuses on the challenge of China’s enormous regional diversity, and the tool of emissions trading. This chapter uses a multi-provincial static CGE model of the Chinese economy, SinoTERM-CO2, to simulate the linking of two provinces through a single emissions trading scheme. The simulations show that the richer regions (typified by Guangdong) may benefit from linking but the poorer regions (typified by Hubei) may lose. This is because poorer provinces in China tend to be more emissions intensive and therefore likely to face a carbon price rise upon linking, the economy-wide costs of which may be only partially offset by trading, if indeed trading is permitted. The economic logic behind this is explained by improving on the stylized model suggested by Adams and Parmenter (2013). China has not yet decided whether provincial caps will be retained when a national emissions trading scheme is introduced. This analysis suggests that they should be retained, and made more generous for poorer regions in order to ensure that linking is both welfare enhancing and politically acceptable.
... Consistent with this reasoning, Thompson (2010) examined negotiations within the UNFCCC and found that greater uncertainty with respect to national emissions was associated with a decrease in support for a national commitment to a global treaty. Webster et al. (2010) examined whether uncertainty with respect to national emissions increases the potential for individual countries to hedge by joining an international trade agreement. They found that hedging had a minor impact compared to the other effects of international trade, namely burden sharing and wealth transfer. ...
... In this model, labor supply is determined exogenously and wages change flexibly. This type of model has frequently been used for climate policy CGE analysis, for example, the MIT EPPA model (Paltsev et al. 2005, Webster et al. 2010) and the OECD ENV-Linkage model (Chateau and Burniaux 2008, OECD 2009). In FLAB, wages constantly adjust so that the demand and supply of labor equalize. ...
International emissions trading (IET) has been widely recognized as a preferred approach for tackling the climate change because it would equalize marginal abatement costs and generates gains for all participants. However, this argument is heavily premised on the notion of partial equilibrium and ignores general equilibrium effects of IET. Using a multi-region, multi-sector CGE model, this paper analyzes effects of IET with focus on labor market distortions. We construct four separate models with several different labor market specifications: i) a model without labor market distortions; ii) a model with tax-interaction effects in the labor market; iii) a model with a minimum wage; and iv) the final model is one in which a wage curve determines wages. We use these models to analyze how the effects of IET change according to model specification.The main results from the analysis are as follows. First, if there are no labor market distortions, IET benefits all countries. Second, even in the context of models with labor market distortions, importers of emissions permits are highly likely to benefit. Conversely, we show that the possibility of a welfare loss from IET is not as small for exporters of permits. In the case of the minimum wage and wage curve models, we find in particular that the exporters of emissions permits are likely to be disadvantaged. However, this also depends on the region in question. For example, China is likely to suffer under IET, whereas Russia, also an exporter, is likely to benefit. We also make clear that if policies are employed to correct (i.e. reduce) labor market distortions when emissions regulation is introduced, all participants will benefit from IET in almost all cases. It is generally recognized that IET is a desirable policy that benefits all participating regions. However, we show that an analysis that does not take account of such labor market distortions will likely overestimate the benefits of IET for permit exporters.
... The globalist approach has been criticized for several deficiencies: the large number of actors makes negotiations slow and the need for consensus leads to a lowest-common-denominator problem; international organizations are too weak to enforce an agreement so closely tied to industrial competitiveness; a single agreement cannot adequately resolve heterogeneity in national preferences; past success in globally addressing other international environmental problems, such as ozone depletion, are poor analogies to climate change (Victor et al., 2005;Prins and Rayner, 2007). On the other hand, the disaggregated approach is criticized for being too slow; unlikely to overcome free-riding; less likely to represent the concerns of the most vulnerable; lacking essential coordination mechanisms; and not making use of the institutional capacity, developed over two decades, for supporting, monitoring and enforcing an agreement (Schellnhuber, 2007;Flachsland et al., 2009;Webster et al., 2010). ...
In building a governance regime to address climate change, should we prioritize the development of global institutions or national ones? This paper focuses on two neglected characteristics to inform the governance problem: the incentives for investment in low-carbon energy technology and the influence of historical policy volatility. Examining a case study of an important low-carbon energy technology, wind power, this study finds: (1) policy volatility has been substantial, (2) policy changes were uncorrelated across jurisdictions, suggesting that (3) investors could have substantially reduced their exposure to the risk of policy volatility by operating globally. While it also has downsides, a poorly coordinated international policy regime has the advantage of reducing the risk associated with a global policy failure. Beyond this case study, the importance of this positive effect depends on: the probability of policy failures in each country, the correlations among them, and the probability of a global policy failure.
Computable general equilibrium (CGE) models have been widely employed in economic, social, and environmental impact assessments for low-carbon policies. As net-zero transition has become a global trend, it is crucial to conduct a systematic review of how CGE models serve low-carbon policies. This review examined 1002 studies published between 2001 and 2021, revealing the application of CGE models in low-carbon policy analysis by researchers in 51 countries, including the United States, China, Western Europe, Japan, and Australia, while studies in Latin America, Central Asia and Eastern Europe are limited. Climate targets, carbon pricing, and energy policy are the main policy focuses of CGE analysis, while land policy, demand-side actions, and several other policies are less studied. In addition, CGE analysis generally focuses on the economic impacts of carbon reduction, with a growing amount of attention on social and environmental consequences. The structure, database, and model coupling techniques of CGE models are becoming more complex in order to serve the increasingly multifaceted and diverse policy study purposes. This study provides a comprehensive overview of the research trends of CGE studies on low-carbon policies, thus improving our understanding on low-carbon policies, multiple impacts, and CGE models. We also identify the gaps and potential cutting-edge techniques of current low-carbon policy research. Future work should improve the capacity of CGE models to simulate actual “second-best” policies, provide feedback of complex impacts on policy optimization, and enhance dynamic mechanisms on structural change.
The ambitious climate policy objectives of the COP21 agreement require the design and the implementation of effective and efficient policy instruments. The effectiveness and efficiency of agricultural abatement options depend on regional climate and natural conditions, changes in the global economy, global agricultural markets and regional agricultural production. Thus, the assessment of abatement options requires consideration of the global scale, the market scale and the regional producer scale. We investigate two abatement options discussed controversially in literature. Both have been partially applied to reduce environmental pollution from agriculture: a tax on nitrogen and the obligatory set-aside of agricultural land. Our study provides an assessment of the ecological effectiveness and the economic efficiency of both abatement options under different global scenarios. In our policy analysis we combine three applied policy simulation models to develop an integrated economic model framework. This model framework considers the global, the national and the regional scale and consists of the global general equilibrium model DART-BIO, the partial-equilibrium model CAPRI and the regional supply model RAUMIS. In the different global scenarios, the results show that both abatement options create relatively high marginal abatement costs and that the maximally reached abated greenhouse gas emissions represent only 15% of the quantity required to fulfill the policy targets. Compared to the obligatory set-aside option, the nitrogen tax is in both scenarios the more efficient policy. With respect to impacts on production and environment, a nitrogen tax is less forecastable than the obligatory set-aside option. Our study illustrates the relevance of considering global economic and market change in the assessment of producer-targeting environmental policies.
Two studies replicate the anomaly identified by Frederick, Meyer and Levis (2015) and Frederick, Levis, Malliaris and Meyer (2018). People show typical risk averse behavior by valuing risk below the focal lottery’s expected value, but they do not bid above its expected value for the hedge that eliminates the risk. Following the authors, we conduct finer analyses by separating participants into two groups – “experts” who understand that acquiring the hedge makes winning certain versus “novices” who do not understand the winning implications of acquiring the hedge. We find that (1) “experts” are more inclined to purchase the hedge compared to the “novices” and (2) unlike the “novices,” they value the hedge significantly more than the risk instrument, but only if they are given the risk instrument free of charge. However, even there, the hedge valuations are significantly less than the lottery’s expected value suggesting that the anomaly described in Frederick et al. (2015, 2018) is robust and likely to affect the way our discipline conceptualizes and models risk behavior.
Establishing regional emissions trading scheme pilots in China is a newly transformative and explorative practice. In this paper, we examine the spot price dynamics, asymmetric clustering and regime-switching behaviors of CO2 emissions allowances in the new China-wide emissions trading scheme (CETS) pilots using AR-GARCH, AR-TARCH and MRS-AR-GARCH models. The regional ETS pilots’ design in China vary widely in their coverage thresholds, sector coverage, emissions allocation and caps setting methods, market trading rules and price stabilization provisions. Our empirical results indicate that the spot prices of regional emissions allowances exhibit significant dynamic behaviors, asymmetric leverage effects and regime-switching behaviors in the entire period considered; previous market overreactions in the Beijing, Tianjin and Guangdong pilots have stronger price clustering effects on future conditional variances than do the Shanghai and Hubei pilots. Unexpected market shocks and greater persistence in the Beijing, Tianjin and Guangdong ETS pilots display stronger market volatility and higher market risks, and their asymmetric leverage effects display a decreasing trend in the volatility of the BEA, TJEA and GDEA prices. The BEA and SHEA prices exhibit significant regime-switching behaviors, price jumps and higher volatility; in addition, the changes in the regime-switching phases are often related to the political mechanism design and the fundamental market factors. Those empirical results are beneficial for government decision-makers and market participants to strengthen risk management strategies, support emission-related investment decisions and optimize co-benefits of alternative energy-environmental policies.
Deep emission cuts rely on the use of low carbon technologies like renewable energy or carbon capture and storage. There is considerable uncertainty about their future costs. We carry out a sensitivity analysis based on Gauss Quadrature for cost parameters describing these technologies in order to evaluate the effect of the uncertainty on total and marginal mitigation costs as well as composition changes in the energy system. Globally, effects in total cost often average out, but different regions are affected quite differently from the underlying uncertainty in costs for key abatement technologies. Regions can be either affected because they are well suited to deploy a technology for geophysical reasons or because of repercussions through international energy markets. The absolute impact of uncertainty on consumption increases over the time horizon and with the ambition of emission reductions. Uncertainty in abatement costs relative to expected abatement costs are however larger under a moderate ambition climate policy scenario because in this case the marginal abatement occurs in the electricity sector where the cost uncertainty is implemented. Under more ambitious climate policy in line with the two degree target, the electricity sector is always decarbonized by 2050, hence uncertainty has less effect on the electricity mix. The findings illustrate the need for regional results as global averages can hide distributional consequences on technological uncertainty.
Although nuclear power is one of the most critical issues in Korean energy policy, there are few comprehensive studies on its direct and indirect economic impacts. In this study, we analyze the economic changes caused by alternative nuclear power policies, including caps for greenhouse gas (GHG) emissions. For this purpose, we construct three scenarios: expansion, no change, and reduction in the share of nuclear power in total power generation. Methodologically, we develop a computable general equilibrium (CGE) model with detailed energy and electricity sector representation and apply the model by utilizing current and projected data on the Korean economy and its energy demand structure. The simulation results quantitatively demonstrate economic and welfare losses when the share of nuclear power in total power generation decreases.
This study quantified the effectiveness of emissions trading by considering multiple technological constraints, burden sharing schemes, and climate stabilization targets. We used a global computable general equilibrium model, and evaluated the effectiveness of emissions trading using welfare losses associated with climate mitigation for scenarios with and without emissions trading, as measured by the Hicksian Equivalent Variation (HEV). We found that emissions trading contributed to a reduction in the economic losses associated with climate mitigation for all technological assumptions, burden sharing schemes, and stabilization targets. The net global welfare losses in scenarios without emissions trading ranged between 0.7% and 1.9%, whereas emissions trading reduced the losses by 0.1% to 0.5%. The range depended on the assumptions in the burden sharing schemes, technological constraints, and stabilization targets. The percentage change in welfare gain from emissions trading varied regionally, and was relatively high in low-income or middle-income countries (0.2% to 1.0% and − 0.1% to 1.2%, respectively) compared to high-income countries (− 0.1% to 0.3%). Some regions displayed negative values with regard to the effectiveness of emissions trading, which might be due to the change in goods and service trades associated with emissions trading. If the usage of carbon capture and storage was constrained, welfare loss became large and the effectiveness of emissions trading ultimately increased. The use of a burden sharing scheme was a significant factor in changing the effectiveness of emissions trading, and the per capita emissions convergence in 2050 was more effective for emissions trading than a per income convergence.
Due to the environmental deterioration, environmental resources have become one of the limited resources for the development of society and economics. How to make the best use of the finite pollutant emission index has become the focus of modern government and enterprises, while emission trading as an environmental financial policy which can accelerate the development of economics, and at the same time control the total amount of pollution, has gained widespread application. This article proposes the new viewpoint of paid distribution and point out the existing problem of emission trading and the solution to it in today’s China.
This study tests the impact of Internal and External Environmental Management on performance in firms subject to the European Union’s Emissions Trading System (ETS). A conceptual model is drawn up based on the existing literature, and tested on a large sample of Italian firms. The unit of analysis is single firms subject to the ETS that are involved in Green Supply Chain Management (GSCM). The ETS mechanism has been shown to be marginally beneficial for some firms while supply chain relationships are also influenced by such system. Firms need to identify suitable practices to boost the effectiveness of their environmental strategies. We propose the implementation of a monitoring strategy as a useful practice for firms to be environmentally and economically better off. Our results show that firms subject to the ETS should rely on their own (internal) Environmental Management alone for improving environmental performance, as collaboration with suppliers only has a positive impact on economic performance. However, implementation of a monitoring strategy allows a firm subject to the ETS to partially offset the inefficiency created by the system. We show that environmental collaboration does not become more effective when a monitoring practice is put in place.
Purpose
– The purpose of this paper is to test the impact of internal and external environmental management (EM) on performance to verify the emission trading (ET) mechanism ' s effectiveness. It aims to investigate whether EM that is carried out by ET firms has a higher influence on performance than EM that is carried out by no-ET firms.
Design/methodology/approach
– A conceptual model is drawn up based on the existing literature in green supply chain management (GSCM) and is tested on a large sample of Italian firms. A multi-group analysis in structural equation modeling allows for the estimation of the impact of internal and external EM on economic and environmental performance over the two groups.
Findings
– Firms under ET regime do not perform better than no-ET firms environmentally or economically; moreover, environmental collaboration is significantly less effective for ET firms.
Research limitations/implications
– Although the ET mechanism has been introduced by the European Union to combat and reduce the emissions, research has shown its marginal effectiveness. Data comprises only data about Italian firms. Items in the questionnaire allow for a two-year lag period. Interviewed firms have been selected according to EM criteria only.
Practical implications
– Firms subjected to the ET mechanism should find more effective and efficient practices to improve their environmental performance because the ET is marginally beneficial.
Originality/value
– The findings supply insights to managers about the real effectiveness of ET as well as to decision planners for the development of future sustainable mechanisms.
Successfully managing global climate change will require a process of sequential, or iterative, decision‐making, whereby policies and other decisions are revised repeatedly over multiple decades in response to changes in scientific knowledge, technological capabilities, or other conditions. Sequential decisions are required by the combined presence of long lags and uncertainty in climate and energy systems. Climate decision studies have most often examined simple cases of sequential decisions, with two decision points at fixed times and initial uncertainties that are resolved at the second decision point. Studies using this formulation initially suggested that increasing uncertainty favors stronger immediate action, while the prospect of future learning favors weaker immediate action, but subsequent work with more general formulations showed that the direction of either effect is indeterminate, depending on multiple elements of model structure and parameter values. Current issues in sequential climate decision‐making include assessing responses to potential slow learning or negative learning, and examining the implications of various mechanisms by which current decision‐makers may seek to influence future decisions by altering the choice sets, knowledge states, marginal costs and benefits, or default procedural requirements faced by future decision‐makers. WIREs Clim Change 2011 2 744–756 DOI: 10.1002/wcc.128
This article is categorized under: Climate Economics > Iterative Risk‐Management Policy Portfolios
Marginal abatement cost (MAC) curves, relationships between tons of emissions abated and the CO2 (or GHG) price, have been widely used as pedagogic devices to illustrate simple economic concepts such as the benefits of emissions trading. They have also been used to produce reduced form models to examine situations where solving the more complex model underlying the MAC is difficult. Some important issues arise in such applications: (1) are MAC relationships independent of what happens in other regions? (2) are MACs stable through time regardless of what policies have been implemented in the past?, and (3) can one approximate welfare costs from them? This paper explores the basic characteristics of MAC and marginal welfare cost (MWC) curves, deriving them using the MIT Emissions Prediction and Policy Analysis (EPPA) model. We find that, depending on the method used to construct them, MACs are affected by policies abroad. They are also dependent on policies in place in the past and depend on whether they are CO2-only or include all GHGs. Further, we find that MACs are, in general, not closely related to MWCs and therefore should not be used to derive estimates of welfare change. It would be a great convenience if a reduced-form response of a more complex model could be used to reliably conduct empirical analysis of climate change policy, but it appears that, at least as commonly constructed, MACs may be unreliable in replicating results of the parent model when used to simulate GHG policies. This is especially true if the policy simulations differ from the conditions under which the MACs were simulated. Care is needed to derive MACs under conditions closely related to the policy under consideration. In such a circumstance they may provide approximate estimates of CO2 or GHG prices for a given policy constraint. They remain a convenient way to visualize responses to a range of abatement levels.
Although emissions of CO2 are the largest anthropogenic contributor to the risks of climate change, other substances are important in the formulation of a cost-effective response. To provide improved facilities for addressing their role, we develop an approach for endogenizing control of these other greenhouse gases within a computable general equilibrium (CGE) model of the world economy. The calculation is consistent with underlying economic production theory. For parameterization it is able to draw on marginal abatement cost (MAC) functions for these gases based on detailed technological descriptions of control options. We apply the method to the gases identified in the Kyoto Protocol: methane (CH4), nitrous oxide (N2O), sulfur hexaflouride (SF6), the perflourocarbons (PFCs), and the hydrofluorocarbons (HFCs). Complete and consistent estimates are provided of the costs of meeting greenhouse-gas reduction targets with a focus on “what” flexibility – i.e., the ability to abate the most cost-effective mix of gases in any period. We find that non-CO2 gases are a crucial component of a cost-effective policy. Because of their high GWPs under current international agreements they would contribute a substantial share of early abatement.
A method for inducing a desired rank correlation matrix on a multivariate input random variable for use in a simulation study is introduced in this paper. This method is simple to use, is distribution free, preserves the exact form of the marginal distributions on the input variables, and may be used with any type of sampling scheme for which correlation of input variables is a meaningful concept. A Monte Carlo study provides an estimate of the bias and variability associated with the method. Input variables used in a model for study of geologic disposal of radioactive waste provide an example of the usefulness of this procedure. A textbook example shows how the output may be affected by the method presented in this paper.
Many different techniques have been proposed for performing uncertainty and sensitivity analyses on computer models for complex processes. The objective of the present study is to investigate the applicability of three widely used techniques to three computer models having large uncertainties and varying degrees of complexity in order to highlight some of the problem areas that must be addressed in actual applications. The following approaches to uncertainty and sensitivity analysis are considered: (1) response surface methodology based on input determined from a fractional factorial design; (2) Latin hypercube sampling with and without regression analysis; and (3) differential analysis. These techniques are investigated with respect to (1) ease of implementation, (2) flexibility, (3) estimation of the cumulative distribution function of the output, and (4) adaptability to different methods of sensitivity analysis. With respect to these criteria, the technique using Latin hypercube sampling and regression analysis had the best overall performance. The models used in the investigation are well documented, thus making it possible for researchers to make comparisons of other techniques with the results in this study.
Policies under consideration within the Climate Convention would impose CO2 controls on only a subset of nations. A model of economic growth and emissions, coupled to an analysis of the climate system, is used to explore the consequences of a sample proposal of this type. The results show how economic burdens are likely to be distributed among nations, how carbon "leakage" may counteract the reductions attained, and how policy costs may be influenced by emissions trading. We explore the sensitivity of results to uncertainty in key underlying assumptions, including the influence on economic impacts and on the policy contribution to long-term climate goals.
Existing fuel taxes play a major role in determining the welfare effects of exempting the transportation sector from measures
to control greenhouse gases. To study this phenomenon we modify the MIT Emissions Prediction and Policy Analysis (EPPA) model
to disaggregate the household transportation sector. This improvement requires an extension of the GTAP data set that underlies
the model. The revised and extended facility is then used to compare economic costs of cap-and-trade systems differentiated
by sector, focusing on two regions: the USA where the fuel taxes are low, and Europe where the fuel taxes are high. We find
that the interplay between carbon policies and pre-existing taxes leads to different results in these regions: in the USA
exemption of transport from such a system would increase the welfare cost of achieving a national emissions target, while
in Europe such exemptions will correct pre-existing distortions and reduce the cost.
To aid climate policy decisions, accurate quantitative descriptions of the uncertainty in climate outcomes under various possible policies are needed. Here, we apply an earth systems model to describe the uncertainty in climate projections under two different policy scenarios. This study illustrates an internally consistent uncertainty analysis of one climate assessment modeling framework, propagating uncertainties in both economic and climate components, and constraining climate parameter uncertainties based on observation. We find that in the absence of greenhouse gas emissions restrictions, there is a one in forty chance that global mean surface temperature change will exceed 4.9 C by the year 2100. A policy case with aggressive emissions reductions over time lowers the temperature change to a one in forty chance of exceeding 3.2 C, thus reducing but not eliminating the chance of substantial warming.
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.
The Emissions Prediction and Policy Analysis (EPPA) model is the part of the MIT Integrated Global Systems Model (IGSM) that represents the human systems. EPPA is a recursive-dynamic multi-regional general equilibrium model of the world economy, which is built on the GTAP dataset and additional data for the greenhouse gas and urban gas emissions. It is designed to develop projections of economic growth and anthropogenic emissions of greenhouse related gases and aerosols. The main purpose of this report is to provide documentation of a new version of EPPA, EPPA version 4. In comparison with EPPA3, it includes greater regional and sectoral detail, a wider range of advanced energy supply technologies, improved capability to represent a variety of different and more realistic climate policies, and enhanced treatment of physical stocks and flows of energy, emissions, and land use to facilitate linkage with the earth system components of the IGSM. Reconsideration of important parameters and assumptions led to some revisions in reference projections of GDP and greenhouse gas emissions. In EPPA4 the global economy grows by 12.5 times from 2000 to 2100 (2.5% per year) compared with an increase of 10.7 times (2.4% per year) in EPPA3. This is one of the important revisions that led to an increase in CO2 emissions to 25.7 GtC in 2100, up from 23 GtC in 2100 projected by EPPA3. There is considerable uncertainty in such projections because of uncertainty in various driving forces. To illustrate this uncertainty we consider scenarios where the global GDP grows 0.5% faster (slower) than the reference rate, and these scenarios result in CO2 emissions in 2100 of 34 (17) GtC. A sample greenhouse gas policy scenario that puts the world economy on a path toward stabilization of atmospheric CO2 at 550 ppmv is also simulated to illustrate the response of EPPA4 to a policy constraint.
Includes bibliographical references (p. 13-14). Abstract in HTML and technical report in HTML and PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/) The Kyoto Protocol is an international agreement aimed at limiting emissions of several greenhouse gases (GHGs; specifically: CO2, CH4, N2O, PFCs, HFCs, and SF6), and allows credit for approved sinks for CO2. It does not include consideration of several other trace atmospheric constituents that have important indirect effects on the radiative budget of the atmosphere. Here we show that inclusion of other GHGs and CO2 sinks greatly reduces the cost of achieving CO2 emissions reductions specified under the agreement. The Kyoto Protocol extrapolated to 2100 reduces predicted warming by only about 17%. The errors caused by simulating other GHGs with scaled amounts of CO2 on atmospheric composition, climate, and ecosystems are small. Larger errors come from failure to account for interactive and climatic effects of gases that affect atmospheric composition but are not included in the protocol (CO, NOx, and SOx). Over the period to 2100, the Global Warming Potential (GWP) indices based on a 100-year time horizon as specified in the protocol appear to be an adequate representation of trace gas climatic effects. The principal reason for the success of this simplified GWP approach in our calculations is that the mix of gas emissions resulting from a carbon-only rather than a multi-gas control strategy does not change by a large amount.
Abstract in HTML and technical report in PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/). The Climate Stewardship Act of 2003 (S. 139) is the most detailed effort to date to design an economy-wide cap-and-trade system for US greenhouse gas emissions reductions. The Act caps sectors at their 2000 emissions in Phase I of the program, running from 2010 to 2015, and then to their 1990 emissions in Phase II starting 2016. There is a strong incentive for banking of allowances, raising the costs in Phase I to achieve savings in Phase II. Use of credits from outside the capped sectors could significantly reduce the cost of the program, even though limited to 15% and 10% of Phase I and II allowances respectively. These credits may come from CO2 sequestration in soils and forests, reductions in emissions from uncapped sectors, allowances acquired from foreign emissions trading systems, and from a special incentive program for automobile manufacturers. The 15% and 10% limits increase the incentive for banking and could prevent full use of cost-effective reductions from the uncapped sectors. Moreover, some of the potential credits might contribute little or no real climate benefit, particularly if care is not taken in defining those from forest and soil CO2 sequestration. Analysis using the MIT Emissions Prediction and Policy Analysis model shows that costs over the two Phases of the program could vary substantially, depending on normal uncertainty in economic and emissions growth, and the details of credit system implementation.
Future global climate projections are subject to large uncertainties. Major sources of this uncertainty are projections of anthropogenic emissions. We evaluate the uncertainty in future anthropogenic emissions using a computable general equilibrium model of the world economy. Results are simulated through 2100 for carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulfur hexafluoride (SF6), sulfur dioxide (SO2), black carbon (BC) and organic carbon (OC), nitrogen oxides (NOx), carbon monoxide (CO), ammonia (NH3) and non-methane volatile organic compounds (NMVOCs). We construct mean and upper and lower 95% emissions scenarios (available from the authors at 1°×1° latitude–longitude grid). Using the MIT Integrated Global System Model (IGSM), we find a temperature change range in 2100 of 0.9 to 4.0°C, compared with the Intergovernmental Panel on Climate Change emissions scenarios that result in a range of 1.3 to 3.6°C when simulated through MIT IGSM.
Many trace constituents other than carbon dioxide affect the radiative budget of the atmosphere. The existing international agreement to limit greenhouse gases, the Kyoto Protocol, includes carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6) and credit for some carbon sinks. We investigate technological options for reducing emissions of these gases and the economic implications of including other greenhouse gases and sinks in the climate change control policy. We conduct an integreated assessment of costs using the MIT Emissions Prediction and Policy Analysis (EPPA) model combined with estimates of abatement costs for non-CO2 greenhouse gases and sinks. We find that failure to take advantage of the other gas and sink flexibility would nearly double aggregate Annex B costs. Including all the GHGs and sinks is actually cheaper than if only CO2 had been included in the Protocol and their inclusion achieves greater overall abatement. There remains considerable uncertainty in these estimates, the magnitude of the savings depends heavily on reference projections of emissions, for example, but these uncertainties do not change the overall conclusion that non-CO2 GHGs are an important part of a climate control policy.
The effects of air pollution on vegetation may provide an important control on the carbon cycle that has not yet been widely considered. Prolonged exposure to high levels of ozone, in particular, has been observed to inhibit photosynthesis by direct cellular damage within the leaves and through possible changes in stomatal conductance. We have incorporated empirical equations derived for trees (hardwoods and pines) and crops into the Terrestrial Ecosystem Model to explore the effects of ozone on net primary production (NPP) and carbon sequestration across the conterminous United States. Our results show a 2.6–6.8% mean reduction for the United States in annual NPP in response to modelled historical ozone levels during the late 1980s-early 1990s. The largest decreases (over 13% in some locations) occur in the Midwest agricultural lands, during the mid-summer when ozone levels are highest. Carbon sequestration since the 1950s has been reduced by 18–38 Tg C yr−1 with the presence of ozone. Thus the effects of ozone on NPP and carbon sequestration should be factored into future calculations of the United States' carbon budget.
This paper has three purposes: 1) to identify the near-term costs to the United States of ratifying the Kyoto Protocol; 2) to assess the significance of the Protocol's "flexibility provisions"; and, 3) to evaluate the Kyoto targets in the context of the long-term goal of the Framework Convention. We find that the short-term U.S. abatement costs of implementing this Protocol are likely to be substantial. These costs can be reduced through international trade in emission rights. The magnitude of the costs will be determined by the number of countries participating in the trading market, the shape of each country's marginal abatement cost curve, and the extent to which buyers can satisfy their obligation through the purchase of emission rights. Finally and perhaps most important: unless the ultimate concentration target is well below 550 ppmv, the Protocol seems to be inconsistent with a long-term strategy for stabilizing global concentrations.
Alternative policies to address global climate change are being debated in many nations and within the United Nations Framework Convention on Climate Change. To help provide objective and comprehensive analyses in support of this process, we have developed a model of the global climate system consisting of coupled sub-models of economic growth and associated emissions, natural fluxes, atmospheric chemistry, climate, and natural terrestrial ecosystems. The framework of this Integrated Global System Model is described and the results of sample runs and a sensitivity analysis are presented. This multi-component model addresses most of the major anthropogenic and natural processes involved in climate change and also is computationally efficient. As such, it can be used effectively to study parametric and structural uncertainty and to analyze the costs and impacts of many policy alternatives. Initial runs of the model have helped to define and quantify a number of feedbacks among the sub-models, and to elucidate the geographical variations in several variables that are relevant to climate science and policy. The effect of changes in climate and atmospheric carbon dioxide levels on the uptake of carbon and emissions of methane and nitrous oxide by land ecosystems is one potentially important feedback which has been identified. The sensitivity analysis has enabled preliminary assessment of the effects of uncertainty in the economic, atmospheric chemistry, and climate sub-models as they influence critical model results such as predictions of temperature, sea level, rainfall, and ecosystem productivity. We conclude that uncertainty regarding economic growth, technological change, deep oceanic circulation, aerosol radiative forcing, and cloud processes are important influences on these outputs.
Quantifying the uncertainty in future climate change is an important input into policy decisions. Two important sources of uncertainty are economic growth and technological change, which in turn contribute to uncertainty in future emissions. In this paper, we focus on uncertainty in one type of technical change: productivity growth. Estimates of uncertainty in future growth must necessarily include expert judgment, since the future will not necessarily look like the past. But previous uncertainty studies have taken expert judgments based on annual national growth rates, and applied them to models with regional aggregations and multi-year time steps, and often have made crude assumptions about the correlation between regions. This paper analyzes data on the variability and covariability of historical economic productivity growth rates, and investigates the effect of spatial and temporal aggregation on variance. The results are intended to inform participants in expert elicitation exercises on future economic growth uncertainty.
We estimate reference CO2 emission projections in the European Union, and quantify the economic impacts of the Kyoto commitment on Member States. We consider the case where each EU member individually meets a CO2 emissions target, applying a country-wide cap and trade system to meet the target but without trade among countries. We use a version of the MIT Emissions Prediction and Policy Analysis (EPPA) model, here disaggregated to separately include 9 European Community countries and commercial and household transportation sectors. We compare our results with that of four energy-economic models that have provided detailed analyses of European climate change policy. In the absence of specific additional climate policy measures, the EPPA reference projections of carbon emissions increase by 14% from 1990 levels. The EU-wide target under the Kyoto Protocol to the Framework Convention on Climate Change is a reduction in emissions to 8% below 1990 levels. EPPA emissions projections are similar to other recent modeling results, but there are underlying differences in energy and carbon intensities among the projections. If EU countries were to individually meet the EU allocation of the Community-wide carbon cap specified in the Kyoto Protocol, we find using EPPA that carbon prices vary from $91 in the United Kingdom to $385 in Denmark; welfare costs range from 0.6% to 5%.
At meetings in Bonn and Marrakech in 2001, the Conference of the Parties to the Framework Convention on Climate Change broke through an impasse on the detailed provisions needed to allow the Kyoto Protocol to enter into force. Key ingredients in the breakthrough included US withdrawal from the process, an effective relaxation of emissions targets for Japan, Canada, and Russia, and provision of access to unrestricted emissions trading. We analyze the costs of implementation and the environmental effectiveness of the Bonn–Marrakech agreement, and its effect on the relative roles of CO2 versus non-CO2 greenhouse gases. The ability of the major sellers of permits, notably Russia and Ukraine, to restrict access to permits, and the ability to trade across all greenhouse gases controlled under the Protocol, are both found to have a significant effect for both costs and effectiveness. Nevertheless, the current agreement requires reductions that do not constitute a significant step in accomplishing the long-term objectives of the Framework Convention. While the letter of the agreement does not require substantive action, individual nations have indicated an interest in actions that will affect the distribution of costs and could improve the environmental effectiveness of the agreement. The Bush administration proposal allows for emissions growth that exceeds even that found under the weakened Protocol, but is important for re-engaging the US and offering a possible approach for developing countries in future commitment periods. Finally, the potential for reconciling competing systems is explored.
The rate and magnitude of technological change is a critical component in estimating future anthropogenic carbon emissions. We present a methodology for modeling low-carbon emitting technologies within the MIT Emissions Prediction and Policy Analysis (EPPA) model, a computable general equilibrium (CGE) model of the world economy. The methodology translates bottom-up engineering information for two carbon capture and sequestration (CCS) technologies in the electric power sector into the EPPA model and discusses issues that arise in assuring an accurate representation and realistic market penetration. We find that coal-based technologies with sequestration penetrate, despite their higher cost today, because of projected rising natural gas prices.
Includes bibliographical references. Abstract in HTML and technical report in HTML and PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/) Marginal abatement curves (MACs) are often used heuristically to demonstrate the advantages of emissions trading. In this paper, the authors derive MACs from EPPA, the MIT Joint Program's computable general equilibrium model of global economic activity, energy use and CO₂ emissions, to analyze the benefits of emissions trading in achieving the emission reduction targets implied by the Kyoto Protocol. The magnitude and distribution of the gains from emissions trading are examined for both an Annex B market and for full global trading, as well as the effects of import limitations, non-competitive behavior, and less than fully efficient supply. In general, trading benefits all parties at least some, and from a global standpoint, the gains from trading are greater, the wider and less constrained is the market. The distribution of the gains from trading is, however, highly skewed in favor of those who would face the highest costs in the absence of emissions trading.
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Is emissions trading always beneficial
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