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Industry-Level Emission Trading in the EU

by EiE). The EiE assumptions on fuel re-shifting towards renewables and large efficiency
improvements account for these differences.

Table 2 provides a summary of historic and future aggregate carbon emissions across
countries to which the model has been calibrated. The emission projections in 2010 yield
the effective reduction requirements individual parties face under the Kyoto requirement.
Given the uncertainty surrounding the evolution of non-CO2 greenhouse gas emissions, we
assume implementation of the six-gas burden sharing agreement for CO2 only.

The effective reduction requirements across Annex B countries in 2010 are very different
from the nominal Kyoto commitments based on 1990 emission levels. For example, the
USA, which committed itself to a 7% reduction target with respect to the 1990 level, faces
an effective cutback requirement of nearly 30% as compared to the 2010 BaU level. On the
other hand, regions like EIT and FSU will stay well below their 1990 emission levels due
to structural breaks in economic activities. As to the European Union, the aggregate
nominal EU target of 8.6% comes down to an effective target of 14.2%.

Apart from matching the model at the regional level to the emission projections provided
in Table 2, we also calibrate functional forms for power production, i. e. the energy mix in
electricity generation, to reproduce the BaU emissions from power generations in 2010
according to the specific EiE forecasts (EiE 1999, pp. 188-217). The latter calibration
provides us with the energy experts' starting point for analyzing the implications of EU-
wide carbon emission trading across the electricity sectors. Table 3 summarizes the

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