Industry-Level Emission Trading in the EU
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emission rights are given away at no charge to the electricity sector (grandfathering).
Throughout the simulations, we assume that revenues from the application of carbon taxes
or the introduction of emission permits are recycled lump-sum to the representative
consumer. The one exception - as just noted - is the scenario ELE_GP, in which some
fixed amount of emission rights are handed out for free to the power sector. Table 4
summarizes the main characteristics of the abatement scenarios described above.
3.2 Results
Table 5 summarizes the welfare effects across the alternative emission abatement scenarios
reduction that are measured as percentage changes in real consumption in comparison to
the baseline. These relative changes are translated in total compliance costs in billions of
ECU95 as given in Table 6. Table 7 indicates the marginal abatement costs for the different
scenarios, and Table 8 reports the quantities of traded emissions for the respective
scenarios. Note that the label EUR is used in the tables below to denote the economic
effects at the aggregate EU level (see also Table 1), whereas the label OTH subsumes all
non-EU regions.
Our interpretation of results starts with the no-trade case NTR in which Annex-B countries
impose domestic carbon taxes which are sufficiently high in order to meet their respective
Kyoto target. Not surprisingly, those regions (EUR, USA, JPN, OOE) that face a binding
emission constraint in 2010 bear adjustment costs towards less carbon-intensive
consumption and production patterns. Among OECD countries, the EU faces by far the