Limited trading of emissions permits as a climate cooperation mechanism? US–China and EU–China examples

Gavard, Claire; Winchester, Niven; Paltsev, Sergey

doi:10.1016/j.eneco.2016.06.012

Cited by 52 publications

(19 citation statements)

References 15 publications

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“…These results are evidence of the importance of designing the Chinese ETS wisely. By simulating autarky and linkage scenarios, Gavard et al estimated a sectoral ETS on energy-intensive industries in the EU, the USA, and China [52]. They found that the limit results in different carbon prices between China and Europe or the USA.…”

Section: Literature Reviewmentioning

confidence: 99%

A Study of the Feasibility of International ETS Cooperation between Shanghai and Korea from Environmental Efficiency and CO2 Marginal Abatement Cost Perspectives

Choi

2019

Sustainability

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With the worldwide spread of emissions trading schemes (ETSs) and the need for international cooperation on climate change, there is growing interest in linking ETSs. Along with sustainable development, preventing and controlling pollution, is now regarded as an urgent priority by China and Korea. In the context of the willingness of the Chinese and Korean governments to cooperate on ETS, this paper examines the feasibility of a pilot ETS cooperation between Shanghai and Korea from environmental efficiency and CO2 marginal abatement cost (MAC) perspectives. We apply a directional distance function (DDF) and stochastic frontier analysis (SFA) to estimate the environmental efficiency and the CO2 MAC of coal-fueled power plants in Shanghai and Korea using cross-sectional data from 2015. The results indicate that the group frontier environmental efficiency of Shanghai and Korea reached a similarly high score. However, as to meta-frontier environmental efficiency, the coal-fueled power plants in Korea performed better than those in Shanghai. The CO2 MAC results indicate that, despite the small gap in efficiency performance, the CO2 MAC of coal-fueled power plants is much higher than that in Shanghai due to the big feed-in tariff difference. This is because the MAC not only relates to the environmental efficiency, but also to the feed-in tariff. A higher feed-in tariff leads to higher MAC. To tackle this serious problem, which has also been addressed in previous studies, we suggest that policymakers should focus on the huge CO2 MAC differences caused by feed-in tariff differences to avoid equity problems when building the structure of the Shanghai-Korea ETS cooperation. For instance, compared with power plants in Shanghai, policymakers should set a looser cap and a higher offset for Korean plants. To reduce the impact of feed-in tariff on carbon trading in the market, it would also be effective to arrange a higher quota or a lower carbon tax for coal-fueled power plants in Korea. In addition, policymakers should fill the gaps of 85.15% and 67.6% between the realistic market price and the MAC results of coal-fueled power plants in Shanghai and Korea, respectively, by introducing stricter regulations.

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Section: Literature Reviewmentioning

confidence: 99%

A Study of the Feasibility of International ETS Cooperation between Shanghai and Korea from Environmental Efficiency and CO2 Marginal Abatement Cost Perspectives

Choi

2019

Sustainability

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“…3 The Kyoto mechanisms have faced serious problems in ensuring environmental integrity (Wara 2008;He & Morse 2010;Kollmuss et al 2015;Simmons & Young 2016). New Zealand's connection to those mechanisms, and our poorly 1 Million tonnes of carbon dioxide equivalent 2 Gavard et al (2016) analyse the potential impacts of volume-limited emissions trading between China and the European Union (EU) or United States. They find that both sets of trading partners can benefit if China captures the rents from differential emission prices and that more ambitious global mitigation can be achieved.…”

Section: International Policy Framework For Carbon Marketsmentioning

confidence: 99%

Paying for Mitigation: How New Zealand Can Contribute to Others’ Efforts

Kerr

Leining

2019

SSRN Journal

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Purchasing international emission reductions (IERs) can help New Zealand make a more ambitious and cost-effective contribution toward global climate change mitigation and support developing countries in accelerating their low-emission transition. However, New Zealand must avoid past mistakes by ensuring international purchasing does not derail its own decarbonisation pathway. Furthermore, the Paris Agreement has fundamentally changed how countries will trade IERs over the 2021-30 period. This working paper, which evolved under Motu's ETS Dialogue process from 2016 to 2018, focuses on how we can balance our international and domestic mitigation efforts. It explores how many IERs we may want, how we should integrate international mitigation support with participants' obligations under the New Zealand Emissions Trading Scheme (NZ ETS), and what mechanisms we can use to fund international mitigation effectively. Fundamentally, the New Zealand government will need to ensure that all IERs counted toward its targets and accepted in the NZ ETS have environmental integrity and are both approved and not double counted by seller and buyer governments. This paper presents a working model for New Zealand's purchase of IERs, in which the quantity is controlled by government, purchasing is managed by government for the foreseeable future (with potential participation by private entities), and the quantity is factored into decisions on the NZ ETS cap and price management mechanisms. If NZ ETS participants are able to purchase IERs in the future, then a quantity limit should apply as a percentage of the surrender obligation and the volume should offset other supply under the cap. The paper also highlights an innovative "climate team" mechanism for international climate change cooperation that could facilitate purchasing by the New Zealand government. Two companion working papers address interactions between decisions on international purchasing and the choice of NZ ETS cap and price management mechanisms. The three working papers elaborate on an integrated proposal for managing unit supply, prices, and linking in the NZ ETS that was presented in Kerr et al.

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“…A carbon market linking more countries can lead to larger reductions in abatement costs [21][22][23][24]. However, a carbon market linking regions with similar abatement costs may have limited reductions in abatement costs [25][26][27]. Second, carbon market linkage can increase market liquidity and transaction scales while reducing market fluctuation and avoiding price manipulation [28][29][30].…”

Section: Introductionmentioning

confidence: 99%

Linking Emissions Trading Schemes: Economic Valuation of a Joint China–Japan–Korea Carbon Market

Ma¹,

Songfeng²,

et al. 2019

Sustainability

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Linking carbon emissions trading systems across countries has become an important tool for global emission reduction. The three high-emission Asian countries, China, Japan, and South Korea (ROK), all have initiated carbon trading and published ambitious Intended Nationally Determined Contribution targets. Since 2016, the three countries have discussed establishing a long-term unified market for carbon emissions trading, and have sought a scheme for such exchange. This study aimed to investigate whether linking the carbon emissions trading systems of these three countries could potentially achieve more ambitious emission reduction targets. A dynamic energy-environmental version of the Global Trade Analysis Project model was used to simulate carbon market linkages across the three countries. The results indicated that a linked China–Japan–ROK carbon market would be highly cost-effective, have positive economic benefits for all three countries, and improve the carbon market’s liquidity and transaction scale. Under a scenario with no carbon market linking, the economic losses in China, Japan, and ROK would be $51.55 billion, $13.55 billion, and $74.19 billion, respectively. Meanwhile, with carbon trading linking, the losses would be reduced to $47.08 billion, $5.37 billion, and $9.10 billion, respectively. Therefore, a joint China–Japan–ROK carbon market could greatly promote the adoption of market-based tools for emission reduction.

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Limited trading of emissions permits as a climate cooperation mechanism? US–China and EU–China examples

Cited by 52 publications

References 15 publications

A Study of the Feasibility of International ETS Cooperation between Shanghai and Korea from Environmental Efficiency and CO2 Marginal Abatement Cost Perspectives

A Study of the Feasibility of International ETS Cooperation between Shanghai and Korea from Environmental Efficiency and CO2 Marginal Abatement Cost Perspectives

Paying for Mitigation: How New Zealand Can Contribute to Others’ Efforts

Linking Emissions Trading Schemes: Economic Valuation of a Joint China–Japan–Korea Carbon Market

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