Benefits from increased cooperation and energy trade under CO2 commitments—The Nordic case

Abstract

In this paper, benefits from increasing cross-border cooperation under future CO₂ commitments in the Nordic countries are examined and evaluated. Four cooperative strategies are analyzed and valued separately: cross-border electricity trade, cross-border emission-permit trade, the introduction of a trans-Nordic natural gas transmission grid, and, finally, utilization of all these three strategies simultaneously. The valuation is done under varying CO₂ commitments and under three different scenarios for future energy demand and technological development. In conducting this analysis, the energy-systems model-generator MARKAL (MARKet ALlocation) was used to model the Nordic energy system. It is shown that all cooperative strategies do lower the abatement costs considerably, especially if the strategy including full cooperation is utilized. In this case, additional costs from meeting CO₂ targets may be at least halved for commitments less than 10% reduction until 2050 based on emissions in 1995. No significant difference between low and high CO₂ commitments could be observed in the size of the benefits from cooperation, expressed in billions (10⁹) of Swedish crowns. Benefits from cooperation are generally larger for scenarios including relatively higher future energy demand.     

Vehicle tax policies and new passenger car CO2 performance in EU member states

This article explores the causes for differences in the average CO₂ emissions intensity of the new passenger car (NPC) fleet in member states (MS) across Europe. Although EU policies mitigating CO₂ emissions from NPCs have been in place since 1999, MS strongly diverge in the absolute amount and relative change in emissions over the last decade. The authors employ a qualitative approach to analyse the factors, in particular national vehicle taxes, contributing to this divergence and the relative contribution of national and European policies in reducing national CO₂ emissions from NPCs. The analysis shows that there has been a significant reduction in CO₂ emissions intensity of NPCs since 2007 across most MS, compared with the six years previous to that date. This would indicate that EU-wide policies, such as the CO₂ vehicles regulation, along with the economic recession in 2008, have influenced national NPC CO₂ emissions. Generally, countries with CO₂-differentiated vehicle taxes are observed as more likely to have achieved greater reductions in CO₂ emissions. However, over the same period there have been many confounding factors, such as economic instability in the EU, that also influence NPC emissions. Using more detailed case study analyses of six countries, the authors find that there is scope for well-designed national vehicle tax policies to drive NPC emissions down further than the EU average. In countries with the highest success rate, such as the Netherlands, the design of the vehicle tax, as part of a well-aligned policy package, has been very important in delivering the biggest reductions in CO₂ emissions from NPCs.

POLICY RELEVANCE

The transport sector continues to be an intractable source of CO₂ emissions. Governments around the world are seeking effective policies to deal with the increase in passenger car CO₂ emissions appropriate to their own circumstances. This article examines the experience of EU MS with CO₂-differentiated vehicle taxes in reducing CO₂ emissions in the context of other national and international contributing factors. It should therefore both be useful to policy makers and contribute to climate policy research in general.     

Benefits from increased cooperation and energy trade under CO2 commitments—The Nordic case

In this paper, benefits from increasing cross-border cooperation under future CO₂ commitments in the Nordic countries are examined and evaluated. Four cooperative strategies are analyzed and valued separately: cross-border electricity trade, cross-border emission-permit trade, the introduction of a trans-Nordic natural gas transmission grid, and, finally, utilization of all these three strategies simultaneously. The valuation is done under varying CO₂ commitments and under three different scenarios for future energy demand and technological development. In conducting this analysis, the energy-systems model-generator MARKAL (MARKet ALlocation) was used to model the Nordic energy system. It is shown that all cooperative strategies do lower the abatement costs considerably, especially if the strategy including full cooperation is utilized. In this case, additional costs from meeting CO₂ targets may be at least halved for commitments less than 10% reduction until 2050 based on emissions in 1995. No significant difference between low and high CO₂ commitments could be observed in the size of the benefits from cooperation, expressed in billions (10⁹) of Swedish crowns. Benefits from cooperation are generally larger for scenarios including relatively higher future energy demand.     

Determinants of CO2 emission for post-Soviet Union independent countries

This article analyses the determinants of CO₂ emission for 15 post-Soviet Union independent (PSI) countries given their recent transition to market-based economies and their relatively high levels of corruption. The direct and indirect effects of economic growth on CO₂ emission for the PSI countries are derived using a multiple-equation generalized method of moment (GMM) approach to account for simultaneity among corruption, growth and CO₂ emission. A linear relationship between gross domestic product (GDP) and CO₂ emission was observed from the analysis. Furthermore, GDP influences CO₂ emission directly, but also indirectly through its impact on corruption. Similarly, corruption affects CO₂ emission directly, as well as indirectly through its impact on GDP. Political democracy and economic freedom increase CO₂ emission indirectly through their impact on economic growth. Improved energy efficiency and the EU climate policy reduce CO₂ emission, while inflows of foreign direct investment tend to increase CO₂ emission.

Policy relevance

First, PSI countries need to invest more in efficient energy technologies to mitigate CO₂ emission levels significantly. Second, PSI policies aimed at reducing deforestation (thereby increasing population density) may help mitigate carbon emission. Third, PSI countries would be well served to recognize the detrimental effects of foreign direct investment before embarking on a misguided policy path that attracts such inflows at any cost.     

Profitability of fossil-fuel production under different instruments in international climate policies

This article discusses how different climate policy instruments such as CO₂ taxes and renewable energy subsidies affect the profitability of fossil-fuel production, given that a fixed global climate target shall be achieved in the long term. Within an intertemporal framework, the model analyses show that CO₂ taxes reduce the short-term profitability to a greater extent than technology subsidies, since the competition from CO₂-free energy sources does not become particularly noticeable until decades later. Due to, for example, the discounting of future revenues, most fossil-fuel producers prefer subsidies to their competitors rather than CO₂ taxes. However, this conclusion does not apply to all producers. Oil producers outside OPEC lose the most on the subsidizing of CO₂-free energy, while CO₂ taxes only slightly reduce their profits. This is connected to OPEC's role in the oil market, as the cartel chooses to reduce its extraction significantly in the tax scenario. The results seem to be consistent with the observed behaviour of important players in the climate negotiations.     

Projecting impacts of carbon dioxide emission reductions in the US electric power sector: evidence from a data-rich approach

Conditional forecasts of US economic and energy sector activity are developed using information from a dynamic, data-rich environment. The forecasts are conditional on a path for carbon dioxide emissions outlined in the US Environmental Protection Agency’s Clean Power Plan (CPP) and are estimated based on a factor-augmented autoregressive framework. Results suggest that overall growth will be slower under the CPP than it would otherwise; however, economic growth and CO₂ reductions can be achieved simultaneously. There are little differences between unconditional (business-as-usual) and conditional forecasts of the variables in the early part of the forecast period; the impacts of the CPP are small while the constraints on carbon dioxide are less stringent. The results serve as a data-driven complement to structural analyses of policy change in the energy sector.     

Implementing the Kyoto Protocol without the USA: the strategic role of energy tax adjustments at the border

Abstract

This article explores options for countries that have ratified the 1997 Kyoto Protocol to the UN Framework Convention on Climate Change and that intend to implement ambitious climate protection strategies—the ‘Kyoto coalition’—to deal with possible comparative disadvantages vis-à-vis third parties, in particular industrialized countries that do not adhere to the Kyoto Protocol. Specifically, the article focuses on the instrument of border adjustments for energy taxes. We outline the rationale for such adjustments and examine in detail whether certain border adjustments for energy taxes would be permissible under world trade law, in particular the General Agreement on Tariffs and Trade and the Agreement on Subsidies and Countervailing Measures. We conclude that despite remaining ambiguity in both the legal provisions and the pertinent case law, border tax adjustments are under certain circumstances compatible with world trade law. Yet, given persisting legal uncertainty, it seems likely that affected members of the World Trade Organization would challenge such energy tax adjustments at the border before the WTO dispute settlement mechanism.     

Sinks and the Kyoto Protocol

Abstract

Deliberate land management actions that enhance the uptake of CO₂ or reduce its emissions have the potential to remove a significant amount of CO₂ from the atmosphere over the next three decades. The quantities involved are large enough to satisfy a substantial portion of the Kyoto Protocol commitments for many countries, but are not large enough to stabilise atmospheric concentrations without also implementing major reductions in fossil fuel emissions. ‘Sinks’ can be deployed relatively rapidly at moderate cost and thus could play a useful bridging role while new energy technologies are developed.

There is no difference in climatological effect between CO₂ taken up by the land and CO₂ reductions due to other causes. There are potential regulatory differences, related to the security with which the CO₂ is held and to the accuracy with which it can be measured and verified. A variety of policy approaches are available to address these differences.     

Modeling endogenous learning and imperfect competition effects in climate change economics

In this two-part paper we evaluate the effect of “endogenizing” technological learning and strategic behavior of agents in economic models used to assess climate change policies. In the first part we show the potential impact of R&D policies or demonstration and deployment (D&D) programs in the context of stringent stabilization scenarios. In the second part we show how game-theoretic methods can be implemented in climate change economic models to take into account three types of strategic interactions: (i) the market power of the countries benefiting from very low abatement costs on international markets for CO₂ emissions, (ii) the strategic behavior of governments in the domestic allocation of CO₂ emissions quotas, and (iii) the non-cooperative behavior of countries and regions in the burden sharing of CO₂ concentration stabilization. The two topics of endogenous learning and game-theoretic approach to economic modeling are two manifestations of the need to take into account the strategic behavior of agents in the evaluation of climate change policies. In the first case an R&D policy or a demonstration and deployment (D&D) program are put in place in order to attain a cost reduction through the learning effect; in the second case the agents (countries) reply optimally to the actions decided by the other agents by exploiting their strategic advantages. Simulations based on integrated assessment models illustrate the approaches. These studies have been conducted under the Swiss NCCR-Climate program.     

Carbon dioxide sequestration: how much and when?

Carbon dioxide (CO₂) sequestration has been proposed as a key component in technological portfolios for managing anthropogenic climate change, since it may provide a faster and cheaper route to significant reductions in atmospheric CO₂ concentrations than abating CO₂ production. However, CO₂ sequestration is not a perfect substitute for CO₂ abatement because CO₂ may leak back into the atmosphere (thus imposing future climate change impacts) and because CO₂ sequestration requires energy (thus producing more CO₂ and depleting fossil fuel resources earlier). Here we use analytical and numerical models to assess the economic efficiency of CO₂ sequestration and analyze the optimal timing and extent of CO₂ sequestration. The economic efficiency factor of CO₂ sequestration can be expressed as the ratio of the marginal net benefits of sequestering CO₂ and avoiding CO₂ emissions. We derive an analytical solution for this efficiency factor for a simplified case in which we account for CO₂ leakage, discounting, the additional fossil fuel requirement of CO₂ sequestration, and the growth rate of carbon taxes. In this analytical model, the economic efficiency of CO₂ sequestration decreases as the CO₂ tax growth rate, leakage rates and energy requirements for CO₂ sequestration increase. Increasing discount rates increases the economic efficiency factor. In this simple model, short-term sequestration methods, such as afforestation, can even have negative economic efficiencies. We use a more realistic integrated-assessment model to additionally account for potentially important effects such as learning-by-doing and socio-economic inertia on optimal strategies. We measure the economic efficiency of CO₂ sequestration by the ratio of the marginal costs of CO₂ sequestration and CO₂ abatement along optimal trajectories. We show that the positive impacts of investments in CO₂ sequestration through the reduction of future marginal CO₂ sequestration costs and the alleviation of future inertia constraints can initially exceed the marginal sequestration costs. As a result, the economic efficiencies of CO₂ sequestration can exceed 100% and an optimal strategy will subsidize CO₂ sequestration that is initially more expensive than CO₂ abatement. The potential economic value of a feasible and acceptable CO₂ sequestration technology is equivalent – in the adopted utilitarian model – to a one-time investment of several percent of present gross world product. It is optimal in the chosen economic framework to sequester substantial CO₂ quantities into reservoirs with small or zero leakage, given published estimates of marginal costs and climate change impacts. The optimal CO₂ trajectories in the case of sequestration from air can approach the pre-industrial level, constituting geoengineering. Our analysis is silent on important questions (e.g., the effects of model and parametric uncertainty, the potential learning about these uncertainties, or ethical dimension of such geoengineering strategies), which need to be addressed before our findings can be translated into policy-relevant recommendations.     

Greenhouse gas emissions from Mediterranean agriculture: Evidence of unbalanced research efforts and knowledge gaps

Designing effective mitigation policies for greenhouse gas (GHG) emissions from agriculture requires understanding the mechanisms by which management practices affect emissions in different agroclimatic conditions. Agricultural GHG emissions and carbon sequestration potentials have been extensively studied in the Mediterranean biome, which is a biodiversity hot spot that is highly vulnerable to environmental changes. However, the absolute magnitude of GHG emissions and the extent to which research efforts match these emissions in each production system, are unknown. Here, we estimated GHG emissions and potential carbon sinks associated with crop and livestock production systems in the Mediterranean biome, covering 31 countries and assessing approximately 10,000 emission items. The results were then combined with a bibliometric assessment of 797 research publications to compare emissions estimates obtained with research efforts for each of the studied items. Although the magnitude of GHG emissions from crop production and the associated carbon sequestration potential (261 Tg CO₂eq yr⁻¹) were nearly half of those from livestock production (367 Tg CO₂eq yr⁻¹), mitigation research efforts were largely focused on the former. As a result, the relative research intensity, which relates the number of publications to the magnitude of emissions, is nearly one order of magnitude higher for crop production than for livestock production (2.6 and 0.4 papers Tg CO₂eq⁻¹, respectively). Moreover, this mismatch is even higher when crop and livestock types are studied separately, which indicates major research gaps associated with grassland and many strategic crop types, such as fruit tree orchards, fiber crops, roots and tubers. Most life cycle assessment studies do not consider carbon sequestration, although this single process has the highest magnitude in terms of annual CO₂eq. In addition, these studies employ Tier 1 IPCC factors, which are not suited for use in Mediterranean environments. Our analytical results show that a strategic plan is required to extend on-site field GHG measurements to the Mediterranean biome. Such a plan needs to be cocreated among stakeholders and should be based on refocusing research efforts to GHG balance components that have been afforded less attention. In addition, the outcomes of Mediterranean field studies should be integrated into life cycle assessment-based carbon footprint analyses in order to avoid misleading conclusions.     

A reassessment of the economic effects of global climate change on U.S. agriculture

This study uses recent GCM forecasts, improved plant science and water supply data and refined economic modeling capabilities to reassess the economic consequences of long-term climate change on U.S. agriculture. Changes in crop yields, crop water demand and irrigation water arising from climate change result in changes in economic welfare. Economic consequences of the three GCM scenarios are mixed; GISS and GFDL-QFlux result in aggregate economic gains, UKMO implies losses. As in previous studies, the yield enhancing effects of atmospheric CO₂ are an important determinant of potential economic consequences. Inclusion of changes in world food production and associated export changes generally have a positive affect on U.S. agriculture. As with previous studies, the magnitude of economic effects estimated here are a small percentage of U.S. agricultural value.     

The impacts of economic structure on China’s carbon dioxide emissions: an analysis with reference to other East Asian economies

A change in economic structure influences the total energy consumption as well as CO₂ emissions of a country, given the inherent difference in levels of energy intensity and energy fuel mix of different economic sectors. Its significance has been recognized in recent literature on China’s emission mitigation which could arguably raise China’s mitigation potential and thus the possibility of keeping the 2-degree trajectory on track. This article utilizes the past trend of economic structural change of five East Asian developed economies to project the energy consumption and CO₂ emissions of China in the coming decades. A special delineation of the economic sector is made, putting private consumption together with the three typical economic production sectors, to resolve the mismatch between the statistical data of energy consumption and economic production, in that residential energy consumption is typically merged into the tertiary sector, although it does not directly correspond to gross domestic product (GDP) output. Results suggest that the level of CO₂ emissions would be lower if China followed a development pathway emphasizing the development of the tertiary sector and continuously shrinking her secondary sector, making it possible for China to contribute more to global carbon mitigation. The impact from the rise of private consumption would be relatively insignificant compared to deindustrialization. In addition to continuous improvement in technology, economic structural change, which reduces carbon emission intensity, would be essential for China to be able to achieve the carbon emission level pledged in the Paris Agreement.

Key policy insights

• For China, significant economic structural reform, particularly deindustrialization, is necessary to achieve the goal of ‘peak emission by 2030’.

• Any additional contribution from China to the global effort to maintain a 2-degree trajectory would be limited – from a ‘fair-contribution’ perspective based on share of population or GDP – because the implied mitigation targets would be almost impossible to achieve.

• If developing countries follow the pathway of developed economies, particularly in developing energy-intensive industries, energy consumption and CO₂ emissions would significantly increase, reducing the possibility of keeping global temperature rise within the 2-degree Celsius benchmark.

     

Defining deep decarbonization pathways for Switzerland: an economic evaluation

This article simulates deep decarbonization pathways for a small open economy that lacks the usual avenues for large CO₂ reductions – heavy industry and power generation. A computable general equilibrium model is used to assess the energy and economic impacts of the transition to only one ton of CO₂ emissions per capita in 2050. This represents a 76% reduction with respect to 1990 levels, while the population is expected to be 46% larger and GPD to increase by 90%. The article discusses several options and scenarios that are compatible with this emissions target and compares them with a reference scenario that extrapolates already-decided climate and energy policy instruments. We show that the ambitious target is attainable at moderate welfare costs, even if it needs very high carbon prices, and that these costs are lower when either CO₂ can be captured and sequestered or electricity consumption can be taxed sufficiently to stabilize it.

Policy relevance

In the context of COP 21, all countries must propose intended contributions that involve deep decarbonization of their economy over the next decades. This article defines and analyses such pathways for Switzerland, taking into consideration the existing energy demand and supply and also already-defined climate policies. It draws several scenarios that are compatible with a target of 1 ton of CO₂ emissions per capita in 2050. This objective is very challenging, especially with the nuclear phase out decided after the disaster in Fukushima and the political decision to balance electricity trade. Nevertheless, it is possible to design several feasible pathways that are based on different options. The economic cost is significant but affordable for the Swiss economy. The insights are relevant not only for Switzerland, but also for other industrialized countries when defining their INDCs.     

Optimal production resource reallocation for CO2 emissions reduction in manufacturing sectors

To mitigate the effects of climate change, countries worldwide are advancing technologies to reduce greenhouse gas emissions. This paper proposes and measures optimal production resource reallocation using data envelopment analysis. This research attempts to clarify the effect of optimal production resource reallocation on CO₂ emissions reduction, focusing on regional and industrial characteristics. We use finance, energy, and CO₂ emissions data from 13 industrial sectors in 39 countries from 1995 to 2009. The resulting emissions reduction potential is 2.54 Gt-CO₂ in the year 2009, with former communist countries having the largest potential to reduce CO₂ emissions in the manufacturing sectors. In particular, basic material industry including chemical and steel sectors has a lot of potential to reduce CO₂ emissions.     

An Overview of Terrestrial Sequestration of Carbon Dioxide: the United States Department of Energy's Fossil Energy R&D Program

Increasing concentrations of CO₂ and other greenhouse gases (GHG) in the Earth's atmosphere have the potential to enhance the natural greenhouse effect, which may result in climatic changes. The main anthropogenic contributors to this increase are fossil fuel combustion, land use conversion, and soil cultivation. It is clear that overcoming the challenge of global climate change will require a combination of approaches, including increased energy efficiency, energy conservation, alternative energy sources, and carbon (C) capture and sequestration. The United States Department of Energy (DOE) is sponsoring the development of new technologies that can provide energy and promote economic prosperity while reducing GHG emissions. One option that can contribute to achieving this goal is the capture and sequestration of CO₂ in geologic formations. An alternative approach is C sequestration in terrestrial ecosystsems through natural processes. Enhancing such natural pools (known as natural sequestration) can make a significant contribution to CO₂ management strategies with the potential to sequester about 290 Tg C/y in U.S. soils. In addition to soils, there is also a large potential for C sequestration in above and belowground biomass in forest ecosystems.A major area of interest to DOE's fossil energy program is reclaimed mined lands, of which there may be 0.63 ×10⁶ ha in the U.S. These areas are essentially devoid of soil C; therefore, they provide an excellent opportunity to sequester C in both soils and vegetation. Measurement of C in these ecosystems requires the development of new technology and protocols that are accurate and economically viable. Field demonstrations are needed to accurately determine C sequestration potential and to demonstrate the ecological and aesthetic benefits in improved soil and water quality, increased biodiversity, and restored ecosystems.The DOE's research program in natural sequestration highlights fundamental and applied studies, such as the development of measurement, monitoring, and verification technologies and protocols and field tests aimed at developing techniques for maximizing the productivity of hitherto infertile soils and degraded ecosystems.     

International and national climate policies for aviation: a review

Aviation constitutes about 2.5% of all energy-related CO₂ emissions and in addition there are non-CO₂ effects. In 2016, the ICAO decided to implement a Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) and in 2017 the EU decided on faster emission reductions in its Emissions Trading System (EU ETS), which since 2012 includes the aviation sector. The effects of these policies on the expected development of air travel emissions from 2017 to 2030 have been analyzed. For the sample country Sweden, the analysis shows that when emissions reductions in other sectors are attributed to the aviation sector as a result of the EU ETS and CORSIA, carbon emissions are expected to reduce by ?0.8% per year (however if non-CO₂ emissions are included in the analysis, then emissions will increase). This is much less than what is needed to achieve the 2°C target. Our analysis of potential national aviation policy instruments shows that there are legally feasible options that could mitigate emissions in addition to the EU ETS and CORSIA. Distance-based air passenger taxes are common among EU Member States and through increased ticket prices these taxes can reduce demand for air travel and thus reduce emissions. Tax on jet fuel is an option for domestic aviation and for international aviation if bilateral agreements are concluded. A quota obligation for biofuels is a third option.

Key policy insights

• Existing international climate policies for aviation will not deliver any major emission reductions.

• Policymakers who want to significantly push the aviation sector to contribute to meeting the 2°C target need to work towards putting in place tougher international policy instruments in the long term, and simultaneously implement temporary national policy instruments in the near-term.

• Distance-based air passenger taxes, carbon taxes on jet fuel and quota obligations for biofuels are available national policy options; if they are gradually increased, and harmonized with other countries, they can help to significantly reduce emissions.

     

Post-2012 CDM multi-criteria analysis of industries in six Asian countries: Iranian case study

The prospects of the Clean Development Mechanism (CDM) and for carbon income, up to and beyond 2012, in the industrial sectors of Iran and five other Asian countries are investigated. The attractiveness and suitability of each host country, the status of their industrial sectors (based on four post-2012 scenarios), and the post-2012 potential of the CDM (or similar carbon projects) in these sectors are all examined. A multi-criteria analysis of Iran, Saudi Arabia, the UAE, Qatar, China, and India, based on seven sets of criteria (institutional, regulatory, economic, political, social, CDM experience, and energy production/consumption), is conducted, and the post-2012 potential carbon incomes of each country – based on CO₂e emissions of industrial processes – are calculated. Finally, the Iranian industrial sector and the impact of deregulation of energy prices are examined. The post-2012 potential savings in the Iranian industrial sector are calculated based on energy savings, carbon income, and environmental savings. The results indicate that there is strong demand for investment and new technology in this sector to combat several-fold energy price increases. Moreover, high-priced carbon credits could play a meaningful role in post-2012 energy policies in this sector.

Policy relevance

This research is the first study to quantify the carbon market potentials in the industrial sectors of the selected Organization of the Petroleum Exporting Countries (OPEC) members. The Kyoto Protocol is considered by most OPEC countries to be a mixed bag of threats and opportunities and they have shown ambivalence towards it, mainly due to the threat a reduction of fossil fuel consumption poses to their economies. On the other hand, energy efficiency is a desirable goal for their industrial sectors. Iran, as an OPEC member country with vast energy resources, has mostly ignored the CDM during the first commitment period of the Kyoto Protocol and has performed poorly on CDM implementation. However, the current deregulation of energy prices in Iran, with profound cuts in energy subsidies, would definitely alter the perspective of its industrial decision makers on the post-2012 carbon potentials.     

Changes in European greenhouse gas and air pollutant emissions 1960–2010: decomposition of determining factors

This paper analyses factors that contributed to the evolution of SO₂, NO_x and CO₂ emissions in Europe from 1960 to 2010. Historical energy balances, along with population and economic growth data, are used to quantify the impacts of major determinants of changing emission levels, including energy intensity, conversion efficiency, fuel mix, and pollution control. Time series of emission levels are compared for countries in Western and Eastern Europe, throwing light on differences in the importance of particular emission-driving forces. Three quarters of the decline in SO₂ emissions in Western Europe resulted from a combination of reduced energy intensity and improved fuel mix, while dedicated end-of-pipe abatement measures played a dominant role in the reduction of NO_x emissions. The increase in atmospheric emissions in Eastern Europe through the mid-1990s was associated with the growth of energy-intensive industries, which off-setted the positive impact of better fuel quality and changes in fuel mix. A continuous decrease in energy intensity and higher conversion efficiencies have been the main factors responsible for the moderate rate of growth of European CO₂ emissions.     

Trade in ‘virtual carbon’: Empirical results and implications for policy

The fact that developing countries do not have carbon emission caps under the Kyoto Protocol has led to the current interest in high income countries in border taxes on the ‘virtual’ carbon content of imports. We use GTAP data and input-output analysis to estimate the flows of virtual carbon implicit in domestic production technologies and the pattern of international trade. The results present striking evidence on the wide variation in the carbon-intensiveness of trade across countries, with major developing countries being large net exporters of virtual carbon. Our analysis suggests that a tax on virtual carbon could lead to very substantial effective tariff rates on the exports of the most carbon-intensive developing nations. As an illustration, we find that average tariff rates of 10%, 8% and 12% would be faced by imports from China, India and South Africa if carbon is taxed at $50/ton CO₂. Moreover, there is wide variation in intensiveness across sectors within countries with implications for the disparate effective tariff burdens on particulars parts of the economies of these countries. Such empirical findings, we argue, are useful for framing on-going discussions about the principles and practice of border taxes on virtual carbon.