What to Expect from Sectoral Trading: A US-China example
Title: What to Expect from Sectoral Trading: A US-China example
Citation: Climate Change Economics, 2011, 2, 1, 9-26
Series/Number: [Loyola de Palacio Energy Policy Programme]
ISSN: 2010-0078; 2010-0086
In the recent United Nations Framework Convention on Climate Change (UNFCCC) negotiations, sectoral trading was proposed to encourage early action and spur investment in low carbon technologies in developing countries. This mechanism involves including a sector from one or more nations in an international cap-and-trade system. We analyze trade in carbon permits between the Chinese electricity sector and a US economy-wide cap-and-trade program using the MIT Emissions Prediction and Policy Analysis (EPPA) model. In 2030, the US purchases permits valued at $42 billion from China, which represents 46% of its capped emissions. In China, sectoral trading increases the price of electricity and reduces aggregate electricity generation, especially from coal. However, sectoral trading induces only moderate increases in generation from nuclear and renewables. We also observe increases in emission from other sectors. In the US, the availability of cheap emissions permits reduces the cost of climate policy and increases electricity generation.
This publication is based on research carried out in the frame work of the Loyola de Palacio Energy Policy Programme of the Robert Schuman Centre for Advanced Studies, European University Institute.
Type of Access: openAccess
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