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Oil price scenarios and climate policy: welfare effects of including transportation in the EU emissions trading system

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  • Asbjørn Torvanger
  • Steffen Kallbekken
  • Petter Tollefsen

Abstract

The stringency of policies needed to meet a climate target is influenced by uncertain oil prices because price changes cause emission changes, making the robustness of climate policy instruments important. As a result of its dependence on oil, emissions from the transport sector are particularly sensitive to oil price changes. We use a computable general equilibrium model to study the effects of including the transport sector in the EU’s emissions trading scheme under three future oil price scenarios. Our results show that there are potentially significant welfare gains from including transportation in the emissions trading scheme because the system as a whole helps absorb required changes in climate policy to meet the overall EU cap on emissions. There is, however, a cost in terms of somewhat greater permit price uncertainty. Copyright Springer Science+Business Media B.V. 2012

Suggested Citation

  • Asbjørn Torvanger & Steffen Kallbekken & Petter Tollefsen, 2012. "Oil price scenarios and climate policy: welfare effects of including transportation in the EU emissions trading system," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 17(7), pages 753-768, October.
    • Handle: RePEc:spr:masfgc:v:17:y:2012:i:7:p:753-768
    DOI: 10.1007/s11027-011-9342-6
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    References listed on IDEAS

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    1. Steffen Kallbekken & Hege Westskog, 2005. "Should Developing Countries Take on Binding Commitments in a Climate Agreement? An Assessment of Gains and Uncertainty," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 41-60.
    2. Andris Piebalgs, 2006. "Green paper: A European strategy for sustainable, competitive and secure energy," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(02), pages 8-20, July.
    3. Leder, Frederic & Shapiro, Judith N., 2008. "This time it's different: An inevitable decline in world petroleum production will keep oil product prices high, causing military conflicts and shifting wealth and power from democracies to authoritar," Energy Policy, Elsevier, vol. 36(8), pages 2840-2842, August.
    4. Steffen Kallbekken & Jon Hovi, 2007. "The price of non-compliance with the Kyoto Protocol: The remarkable case of Norway," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 7(1), pages 1-15, March.
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    Cited by:

    1. Wang, Kai-Hua & Kan, Jia-Min & Qiu, Lianhong & Xu, Shulin, 2023. "Climate policy uncertainty, oil price and agricultural commodity: From quantile and time perspective," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 256-272.

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