Presented by Belay Fekadu, Farzad Taheripour, Patrick Georges, David Mayer-Foulkes, Marianne

Aasen, Hyun-Sik Chung, Kenatro Katsumata, Christa Clapp

GTAP_E

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Presentation Outline• Annex 1 without USA

• Emissions targets

• Energy Substitution Possibilities

• Tax Replacement Implications

• Concluding Comments

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Annex 1 without USA: main resultsKyoto NT Kyoto TR USA BAD USA BAD Kyoto TR USA BAD

Utility RCTAX RCTAXUSA -36 -27 0.6 0.0 77 0EU -22 -14 -10 -0.2 77 42EEFSU 5 -27 -18 1.3 75 42JPN -32 -16 -10 -0.2 77 42RoA1 -36 -21 -15 -0.4 77 42EEx 4 3 1 -0.2 0 0CHIND 1 1 0 0.0 0 0RoW 4 4 1 0.0 0 0Leakage 7% 8% 6%

Emissions

Price of emissions decreases: cheaper hot air

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Change in CO2 Emissions by Producers

USA EU EEFSU JPN RoA1 EEx CHIND RoW TotalAgriculture 0.15 -0.8 -1.77 -0.29 -0.49 0.21 0.11 0.15 -2.73Coal 0 0 0 0 0 0 0 0 0Oil 0 0 0 0 -0.01 0 0 -0.02 -0.03Gas 0 -0.05 -0.09 -0.23 -0.01 -0.01 -0.01 -0.01 -0.39Oil_Pcts 0 -0.01 -0.02 0 -0.01 0 0 0 -0.02Electricity 1.98 -57.43 -98.66 -21.32 -20.74 2.39 1.24 4.75 -187.8En_Int_ind 2.41 -12.18 -21.91 -6.86 -6.15 1.84 2.04 1.8 -39.03Oth_ind_ser 2.77 -11.6 -11.92 -4.58 -6.7 1.61 0.8 1.36 -28.27Total 7.3 -82.07 -134.4 -33.27 -34.1 6.05 4.17 8.01 -258.3

leakage 9%

Quantity: Non-restricted countries increase emitting production a little

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Percent Change in Value of Exports by Industry

USA EU EEFSU JPN RoA1 EEx CHIND RoW TotalAgriculture 16 24 -27 0 8 29 6 16 71Coal -78 -3 -65 -1 -92 -39 -21 -43 -342Oil -10 -41 91 0 -34 -530 -24 -5 -553Gas -7 -61 -223 0 -46 -159 -1 0 -498Oil_Pcts -12 -100 -33 -3 -8 -47 -3 -25 -229Electricity 14 91 -101 0 34 19 5 113 177En_Int_ind 298 339 -527 -27 -39 192 88 267 591Oth_ind_ser 64 55 -73 1 245 421 15 -59 668Total 284 303 -957 -31 67 -114 66 264 -117

Trade: EU and non-restricted countries increase emitting production considerably

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Price Index of Domestic Purchases (Producers)

USA EU EEFSU JPN RoA1 EEx CHIND RoWAgriculture 0.3 0.4 1.9 0.4 0.3 0.2 0.3 0.3Coal 0.0 59.0 82.6 58.0 66.2 -0.8 0.1 -0.2Oil -1.1 -1.4 -2.1 -1.2 -1.3 -1.3 -1.1 -1.1Gas 0.0 18.7 21.2 19.1 26.9 -1.0 0.1 0.1Oil_Pcts -0.8 20.7 20.3 13.4 20.1 -1.1 -0.7 -0.9Electricity 0.2 6.5 25.5 3.4 6.0 -0.6 0.1 0.1En_Int_ind 0.2 1.0 4.6 1.0 1.1 0.0 0.2 0.3Oth_ind_ser 0.2 0.3 0.4 0.3 0.1 0.0 0.2 0.3Total -0.9 105.1 154.4 94.3 119.4 -4.5 -0.7 -1.0

Price: However, expected price differences small in non-constrained countries

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Annex 1 without USA but “good” US behaviour

• USA out of Annex 1 for political reasons

• but USA wants to do something independently

– Self-imposed emission reduction: -36%

• Example: “California does more to reduce CO2 emissions than many Annex 1-countries”

• What to expect? – Cost of this political decision for USA:– it deprives itself from the benefit of trading permits

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Countries Emissions Good behaviour

Emissions Trading, USA in

Quota

USA -35.6 -26.28 -35.6 EU -9.21 -14.25 -22.4 EEFSU -19.24 -26.62 12.87 JPN -10.19 -15.53 -31.8 RoA1 -13.79 -20.96 -35.7 EEx 2.68 2.74 2.68 CHIND 1.05 1.09 1.05 RoW 3.31 3.61 3.31

•When US is out of Annex 1 but behaves nicely: it fulfills its own quota

US must reduce emission by more than if it was in Annex 1

•“Rest of Annex 1” has a less ambitious target (same excess supply of permits; less excess demand overall quota target for Annex 1 is easier to achieve.

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Large increase in carbon tax in the US/ lower increase in rest of Annex 1

Small decrease in US private household welfare (really small---why)

Decrease in welfare in Russia: permits have less values when USA is out of Annex 1

Countries Carbon Tax Good behaviour

Carbon tax Trading, USA in

UP --Welfare Good behaviour

UP --Welfare Trading, USA in

USA 123.51 76.52 -0.39 -0.36 EU 47.98 76.57 -0.1 -0.31 EEFSU 47.54 75.1 1.04 2.23 JPN 47.97 76.63 -0.14 -0.29 RoA1 48.07 76.77 -0.74 -0.95 EEx 0 0 -0.74 -0.7 CHIND 0 0 0.12 0.09 RoW 0 0 0.18 0.16

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Market price of energy in USA

USA out of Annex 1, good behavior

USA in Annex 1, Trading permits

USA out of Annex 1, bad behavior

Agriculture 1.26 1.1 0.3 Coal -8.21 -5.89 0.01 Oil -6.61 -5.51 -1.06

Gas -1.06 -1.06 0.01 Oil_Pcts -4.21 -3.63 -0.77

Electricity 26.87 18.04 0.16 En_Int_ind 3.89 2.66 0.21

Oth_ind_ser 0.87 0.66 0.22

Market price of Coal, Oil and Gas tends to fall as we go from bad to good behavior

Market price of electricity tends to increase

Substitution out of coal, oil and gas and into electricity

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Emissions targets

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Energy Substitution Possibilities

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Tax Replacement Implications

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Concluding Comments