The role of multi-region integrated emissions trading scheme: A computable general equilibrium analysis

Abstract

Globally, emissions trading scheme (ETS) as a cost-effective method to facilitate emissions abatement is raising more and more concerns. Moreover, according to the prevailing goal to reach a global agreement for climate mitigation, integrating emissions trading schemes has emerged as a prominent international cooperation option. This paper implements different scenario analysis and simulates the establishing of a conceivable multi-region integrated emissions trading scheme with China, U.S., Europe, Australia, Japan and South Korea included by utilizing a computable general equilibrium model; specifically, the economic and energy impacts on China in context of multi-region integrated ETS are explicitly investigated. Results indicate that the integration of emissions trading schemes would optimize the allocation of emissions permit and yield economic welfare gains for permits importing countries. Countries with higher abatement cost like U.S., Japan and South Korea would reduce the national GDP loss by 0.16%, 1.33% and 1.42%, respectively. Furthermore, the integration of emissions trading scheme also results in the redistribution of clean energy in participating countries. For China, joining the multi-region integrated ETS would facilitate the development of clean energy, the proportion of which climbs up by 33.7% in MR scenario compared with BAU scenario. In addition, it is worth noting that the multi-region integrated ETS would have significant impacts on the role each region plays in international trade, leading to 11% decline of net export for China in MR scenario compared with SR scenario.