EU enlargement and environmental policy

ANNEX-B and GLOBAL: The impacts of the carbon emission permits trading.

In the trading scenarios the Annex-B countries are allowed to benefit from the flexible
instruments introduced in the Kyoto protocol. In this scenario especially the degree of the
recovery in Russia and particularly the Central European Associates is of importance, as they
will become the largest suppliers of the emission permits on the world market. The flexibility
of meeting the Kyoto targets allows the price of the permit to be lower then in the no trading
case. The extending of the carbon allowance trading enables to exploit further efficiency gains
from lower cost abatement possibilities in the rest of the world (Table 10). This lowers
accordingly the negative welfare impacts in the EUR and RAB, who undertake the main
abatement effort (Table 11). The decrease in welfare of CEA and FSU follows from the
decrease of the carbon price. Further trade liberalization does not influence the marginal
abatement costs, however contributes to an increase in welfare of the EU and CEA. The
changes in the sectoral output as well as trade impacts arise as a response to the specific
environmental policies since emission trading will have a direct impact on the relative prices
of the products traded on world markets. These impacts will however be different between
individual countries, depending on the composition and direction of their imports and exports.

Table 10 Marginal abatement costs in the trading scenarios with no trade liberalization
between EU and CEEC (in USD per ton CO2)

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