Abstract
Starting from the planned linkage of the European Union’s Emissions Trading System with a new system in Australia in 2015, this paper simulates the impacts of expanding this international emissions market to include China and the USA, which are respectively the largest and second largest carbon dioxide emitters in the world. The findings suggest that including China and the USA significantly impacts the price and the quantity of permits traded worldwide. When China joins the EU-Australia-New Zealand (EU-ANZ)-linked market, we find that the prevailing global carbon market price falls significantly, from $35/tCO2 to $11.4/tCO2. In contrast, adding the USA to the EU-ANZ market increases the price to $48/tCO2. If both China and the USA join the linked market, the market price of an emissions permit is $18.1/tCO2 and 610 million metric tons are traded, compared to 95 million metric tons in the EU-ANZ scenario. When permit trading between all countries is considered, relative to when all carbon markets operate in isolation, renewable energy in China expands by more than 22 % and shrinks by 50 and 95 % in the USA and ANZ, respectively. In all scenarios, global emissions are reduced by around 5 % relative to a case without climate policies. Such results may attract the attention of the policy makers as well as the stakeholders for future investment in energy and environmental technology.
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Appendices
Appendix A
Appendix B. Equations
Import Price
where
- c ∈ C :
-
a set of commodities (also referred to as c. and C.)
- c ∈ CM(⊂C):
-
a set of imported commodities
- c ∈ CT(⊂C):
-
a set of domestic trade inputs (distribution commodities)
- PM c :
-
import price in LCU (local-currency units) including transaction costs
- pwm c :
-
c.i.f. import price in FCU (foreign-currency units)
- tm c :
-
import tariff rate
- EXR :
-
exchange rate (LCU per FCU)
- PW c :
-
composite commodity price (including sales tax and transaction costs)
- icm c ' c :
-
quantity of commodity c. as trade input per imported unit of c.
Exporte Price
where
- c ∈ CM(⊂C):
-
a set of exported commodities (with domestic production)
- PE c :
-
export price (LCU)
- pwe c :
-
f.o.b. export price (FCU)
- te c :
-
export tax rate
- ice c ' c :
-
quantity of commodity c. as trade input per exported unit of c.
Demand Price of Domestic Non trated Goods
where
- c ∈ CM(⊂C):
-
a set of commodities with domestic sales of domestic output
- PDD c :
-
demand price for commodity produced and sold domestically
- PDS c :
-
supply price for commodity produced and sold domestically
- icd c ' c :
-
quantity of commodity c. as trade input per unit of c produced and sold domestically
Absorption
where
- QQ c :
-
quantity of goods supplied to domestic market (composite supply)
- QD c :
-
quantity sold domestically of domestic output
- QM c :
-
quantity of imports of commodity
- tq c :
-
rate of sales tax (as share of composite price inclusive of sales tax)
Marketed Output Value
where
- PX c :
-
aggregate producer price for commodity
- QX c :
-
aggregate marketed quantity of domestic output of commodity
- QE c :
-
quantity of exports
- c ∈ CX(⊂C):
-
a set of commodities with domestic output
Activity Price
where
- a ∈ A :
-
a set of activities
- PA a :
-
activity price (gross revenue per activity unit)
- PXAC ac :
-
producer price of commodity c for activity a
- θ a c :
-
yield of output c per unit of activity a
Aggregate Intermediate Input Price
where
- PINTA α :
-
aggregate intermediate input price for activity a
- ica c a :
-
quantity of c per unit of aggregate intermediate input a
Activity Revenue and Costs
where
- ta a :
-
tax rate for activity
- QA a :
-
quantity (level) of activity
- QVA a :
-
quantity of (aggregate) value-added
- QINTA a :
-
quantity of aggregate intermediate input
- PVA a :
-
price of (aggregate) value-added
Consumer Price Index
where
- cwts c :
-
weight of commodity c in the consumer price index
- \( \overline{CPI} \) :
-
consumer price index (exogenous variable)
Producer Price Index for Nontrated Market Output
where
- dwts c :
-
weight of commodity c in the producer price index
- DPI :
-
producer price index for domestically marketed output
CES Technology: Activity Production Function
CES Technology: Value-Added-Intermediate-Input Ratio
where
- a ∈ ACES(⊂A):
-
a set of activities with a CES function at the top of the technology nest
- α a a :
-
efficiency parameter in the CES activity function
- δ a a :
-
CES activity function share parameter
- ρ a a :
-
CES activity function exponent
Value-Added and Factor Demands
Factor demand
where
- f ∈ F(=F ′):
-
a set of factors
- tva α :
-
rate of value-added tax for activity a
- α a a :
-
efficiency parameter in the CES value-added function
- δ v a f a :
-
CES value-added function share parameter for factor f in activity a
- QF fa :
-
quantity demanded of factor f from activity a
- ρ v a a :
-
CES value-added function exponent
- WF f :
-
average price of factor
- \( {\overline{WFDIST}}_{fa} \) :
-
wage distortion factor for factor f in activity a (exogenous variable)
Disaggregated Intermediate Input Demand
where
- QINT c a :
-
quantity of commodity c as intermediate input to activity a
Commodity Production and Allocation
where
- QXAC a c :
-
marketed output quantity of commodity c from activity a
- QHA a c h :
-
quantity of household home consumption of commodity c from activity a for household h
Output Aggregation Function
where
- α ac c :
-
shift parameter for domestic commodity aggregation function
- δ ac ac :
-
share parameter for domestic commodity aggregation function
- ρ ca c :
-
domestic commodity aggregation function exponent
First-Order Condition for Output Aggregation Function
Output Transformation (CET) Function
where
- α t c :
-
a CET function shift parameter
- δ t c :
-
a CET function share parameter
- ρ t c :
-
a CET function exponent
Export-Domestic Supply Ratio
Import-Domestic Demand Ratio
Demand for Transactions Services
where
- QT c :
-
quantity of commodity demanded as transactions service input
Household Consumption Spending on Marketed Commodities
where
- QH c h :
-
quantity of consumption of marketed commodity c for household h
- γ m c h :
-
subsistence consumption of marketed commodity c for household h
- γ h a c ' h :
-
subsistence consumption of home commodity c from activity a for household h
- β m c h :
-
marginal share of consumption spending on marketed commodity c for household h
Factor Markets
where
- \( {\overline{QFS}}_f \) :
-
quantity supplied of factor (exogenous variable)
Composite Commodity Markets
where
- qdst c :
-
quantity of stock change
Direct institutional Tax Rates
where
- TINS i :
-
rate of direct tax on domestic institutions i
- \( {\overline{tins}}_i \) :
-
exogenous direct tax rate for domestic institution i
- \( \overline{TINSADJ} \) :
-
direct tax scaling factor (=0 for base; exogenous variable)
- tins01 i :
-
0.1 parameter with 1 for institutions with potentially flexed direct tax rates
- \( {\overline{DTINS}}_i \) :
-
change in domestic institution tax share (=0 for base, exogenous variable)
Institutional Savings Rates
where
- \( {\overline{mps}}_i \) :
-
base savings rate for domestic institution i
- \( \overline{MPSADJ} \) :
-
savings rate scaling factor (=0 for base)
- mps01 i :
-
0–1 parameter with 1 for institutions with potentially flexed direct tax rates
- DMPS :
-
change in domestic institution savings rates (=0 for base, exogenous variable)
Total Absorption
where
- TABS :
-
total nominal absorption
Ratio of Investment to Absorption
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Younsi, M., Hassine, A.B.H. & Ncir, M. The Economic and Energy Effects of Carbon Dioxide Emissions Trading in the International Market: New Challenge Conventional Measurement. J Knowl Econ 8, 565–584 (2017). https://doi.org/10.1007/s13132-015-0264-5
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DOI: https://doi.org/10.1007/s13132-015-0264-5