Economic impacts of an international carbon market in achieving the INDC targets

Abstract

Marked-based emissions trading systems (ETS) are cost effective to facilitate emission abatement and are expected to play an essential role in international cooperation for global emission mitigation. In this analysis we discussed the impacts of a linked ETS in achieving the Intended Nationally Determined Contribution (INDC) emission reduction target in 2030 with a multi-regional computable general equilibrium (CGE) model. We find that Global ETS can distinctly reduce the emission reduction cost in Annex I countries. The equilibrium CO2 price in the global carbon market in 2030 is around $29.83 per ton of CO2, lower than that of the United States ($45.19/tCO2) and the EU ($41.50/tCO2), about the same level with that of China ($37.30/tCO2), and higher than that of India ($8.39/tCO2) and Russia ($3.97/tCO2) in National ETS Scenario. As the reallocation of emission permits in linking ETS would alter the energy consumption cost of the participant countries, the permit importers' production would be more cost competitive, especially for energy intensive products. The permit exporters undertake the opposite economic impact. However, the fund transferred from the permit importers could stimulate consumption and investment activities in permit exporter countries and overall the linking ETS increase the economic aggregate of the participating countries.