EU enlargement and environmental policy

It is important to notice that the effective reduction requirements for the so-called
Annex-B countries that accepted quantified limitations on emissions, the effective reduction
rates will considerably differ from their agreed targets in 1990 as carbon emissions change
until 2010. Table 5 recounts the effective reduction rates for 2010, following energy
projections (DOE 1998). We notice that the effective cutback of the EU is more than twice in
2010 as compared to the agreed commitments. On the other hand FSU and CEA provide
disposes of hot air, as their effective commitments will not become binding.

Table 5 Nominal and effective CO2 reduction requirements

DOMESTIC - Domestic abatement policies.

In our first scenario, each country has to fulfill its commitments by its own measures
(e.g. a carbon tax or a domestic tradable permit system) without any trading across the
regions. The countries use the most efficient economic instruments to reduce their emissions.
As those become scarcer, the price of abatement increases. Abatement takes place until the
marginal abatement costs equal the carbon tax or the permit price. The results are shown in
Table 6.

The zero values of the marginal abatement costs indicate no carbon cut
requirements (ROW) or no binding commitments in FSU (“Hot air”). Even with some hot air
potential CEA is facing small carbon taxes since energy intensive production is increased,
driving carbon emissions above the carbon allowances. High carbon taxes in EUR and RAB
in comparison with CEA promises further cost savings from the shift of some abatement to
the CEA. The welfare impacts are measured as a percentage change in real consumption with
respect to the BaU scenario thus they do not include environmental benefits. Welfare effects

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