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What To Expect From Sectoral Trading: A Us-China Example

Author

Listed:
  • CLAIRE GAVARD

    (Department of Economics, Ecole Polytechnique 91128 Palaiseau Cedex, France)

  • NIVEN WINCHESTER

    (Department of Economics, University of Otago, PO Box 56, Dunedin, New Zealand)

  • HENRY JACOBY

    (Joint Program on the Science and Policy of Global Change, Massachusetts Institute of Technology, 77 Massachusetts Ave, E19-411, Cambridge, MA 02139-4307, USA)

  • SERGEY PALTSEV

    (Joint Program on the Science and Policy of Global Change, Massachusetts Institute of Technology, 77 Massachusetts Ave, E19-411, Cambridge, MA 02139-4307, USA)

Abstract

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.

Suggested Citation

  • Claire Gavard & Niven Winchester & Henry Jacoby & Sergey Paltsev, 2011. "What To Expect From Sectoral Trading: A Us-China Example," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 9-26.
    • Handle: RePEc:wsi:ccexxx:v:02:y:2011:i:01:n:s201000781100019x
    DOI: 10.1142/S201000781100019X
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    References listed on IDEAS

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    1. Paltsev, Sergey & Jacoby, Henry D. & Reilly, John M. & Ejaz, Qudsia J. & Morris, Jennifer & O'Sullivan, Francis & Rausch, Sebastian & Winchester, Niven & Kragha, Oghenerume, 2011. "The future of U.S. natural gas production, use, and trade," Energy Policy, Elsevier, vol. 39(9), pages 5309-5321, September.
    2. Meriem Hamdi-Cherif & Céline Guivarch & Philippe Quirion, 2011. "Sectoral targets for developing countries: combining 'common but differentiated re-sponsibilities' with 'meaningful participation'," Climate Policy, Taylor & Francis Journals, vol. 11(1), pages 731-751, January.
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    Cited by:

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    2. Anping Chen & Nicolaas Groenewold, 2014. "The regional economic effects of a reduction in carbon emissions and an evaluation of offsetting policies in China," Papers in Regional Science, Wiley Blackwell, vol. 93(2), pages 429-453, June.
    3. Hongbo Duan, Lei Zhu, Gürkan Kumbaroglu, and Ying Fan, 2016. "Regional Opportunities for China To Go Low-Carbon: Results from the REEC Model," The Energy Journal, International Association for Energy Economics, vol. 0(China Spe).
    4. Diniz Oliveira, Thais & Costa Gurgel, Angelo & Tonry, Steve, 2021. "Potential trading partners of a brazilian emissions trading scheme: The effects of linking with a developed region (Europe) and two developing regions (Latin America and China)," Technological Forecasting and Social Change, Elsevier, vol. 171(C).
    5. Jakob, Michael, 2021. "Climate policy and international trade – A critical appraisal of the literature," Energy Policy, Elsevier, vol. 156(C).
    6. Gavard, Claire & Kirat, Djamel, 2018. "Flexibility in the market for international carbon credits and price dynamics difference with European allowances," Energy Economics, Elsevier, vol. 76(C), pages 504-518.
    7. Liu, Zhiqing & Geng, Yong & Dai, Hancheng & Wilson, Jeffrey & Xie, Yang & Wu, Rui & You, Wei & Yu, Zhongjue, 2018. "Regional impacts of launching national carbon emissions trading market: A case study of Shanghai," Applied Energy, Elsevier, vol. 230(C), pages 232-240.
    8. Diniz Oliveira, Thais & Gurgel, Angelo & Tonry, Steve, 2018. "The Effects for Brazil of Linking Emissions Trading Schemes in the context of the Heterogeneity of Trading Partners," Conference papers 332951, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Diniz Oliveira, Thais & Costa Gurgel, Angelo & Tonry, Steve, 2019. "International market mechanisms under the Paris Agreement: A cooperation between Brazil and Europe," Energy Policy, Elsevier, vol. 129(C), pages 397-409.
    10. Qi, Tianyu & Weng, Yuyan, 2016. "Economic impacts of an international carbon market in achieving the INDC targets," Energy, Elsevier, vol. 109(C), pages 886-893.
    11. Vicki Duscha & Everett B. Peterson & Joachim Schleich & Katja Schumacher, 2019. "Sectoral Targets To Address Competitiveness — A Cge Analysis With Focus On The Global Steel Sector," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-27, February.
    12. Paltsev, Sergey & Morris, Jennifer & Cai, Yongxia & Karplus, Valerie & Jacoby, Henry, 2012. "The Role of China in Mitigating Climate Change," Conference papers 332233, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    13. Moheddine Younsi & Amine Ben Hadj Hassine & Mustapha Ncir, 2017. "The Economic and Energy Effects of Carbon Dioxide Emissions Trading in the International Market: New Challenge Conventional Measurement," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 8(2), pages 565-584, June.
    14. Reif, Christiane & Schenker, Oliver, 2015. "The road to Paris: Towards a fair and effective climate agreement?," ZEW policy briefs 5/2015, ZEW - Leibniz Centre for European Economic Research.

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