Carbon border adjustment mechanism in the transition to net-zero emissions: collective implementation and distributional impacts

As an instrument to minimize carbon leakage, the effects and feasibility of Carbon Border Adjustments Mechanism (CBAM) will depend on multiple design options. While the EU has committed to introducing CBAM as part of its green climate deal, pursuing climate efforts to successfully limit global warming requires a collective implementation involving major emitters China and the US. This paper quantifies the distributional impacts of a joint CBAM implementation of in a climate alliance or a club of the EU, the US, and China. Differing from a myriad of studies that focus on unilateral CBAM, this analysis emphasizes collective implications on leakage, sectoral competitiveness, and welfare by projecting climate neutrality relative to current policies and climate targets. Our findings confirm that coalition reduces leakage, improves production on energy-intensive industries, and increases club’s welfare relative to a non-CBAM and a unilateral implementation. These are in contrast with some unilateral analytical studies, especially for the US. It is further proof of the potential of CBAM as collective instruments to facilitate mitigation and trade competitiveness.

     

A General Equilibrium Assessment of Climate Change Impacts on Swiss Winter Tourism with Adaptation

Winter alpine tourism has been repeatedly identified as one of the economic sectors most at risk from climate change in Switzerland. However, all of the costs that have been estimated so far for the Swiss tourism sector are, to some extent, misleading as they do not, or only partially, incorporate adaptation possibilities and general equilibrium effects. We attempt to fill this gap using a computable general equilibrium model that is specifically designed for the purposes of this research. Our modeling efforts first consist in creating a tourism sector with a part of it being dependent on snow. We also carefully model the snowmaking technology. Using climate change scenarios on future snow cover, we analyze their impacts on the Swiss ski industry. We find welfare effects for the Swiss economy ranging from − 23 to 113 million CHF in 2050. This range arises from the use of various assumptions concerning adaptation possibilities. We also show that geographical substitutions between international ski destinations have large positive effects for Switzerland. From a more general perspective, our results exemplify the risks of estimating the consequences of climate change based only on domestic impacts of climate change with no adaptation being implemented.

     

An Oligopoly Game of CDR Strategy Deployment in a Steady-State Net-Zero Emission Climate Regime

In this paper, we propose a simple oligopoly game model to represent the interactions between coalitions of countries in deploying carbon dioxide removal (CDR) strategies in a steady-state net-zero emission climate regime that could take place by the end of the twenty-first century. The emission quotas and CDR activities obtained in the solution of this steady-state model could then be used as a target for end-of-period conditions in a dynamic integrated assessment analysis studying the transition to 2100. More precisely, we analyze a steady-state situation where m coalitions exist and behave as m players in a game of supplying emission rights on an international emission trading system. The quotas supplied by a coalition must correspond to the amount of CO₂ captured through CDR activities in the corresponding world region. We use an extension of the computable general equilibrium model GEMINI-E3 to calibrate the payoff functions and compute an equilibrium solution in the noncooperative game.

     

Measuring the Welfare Cost of Climate Change Policies: A Comparative Assessment Based on the Computable General Equilibrium Model GEMINI-E3

Measuring the welfare cost of climate change policies is a real challenge, raising difficult issues of micro- and macro-economics: cost-benefit analysis on the one hand, foreign trade and international specialization on the second hand. At the domestic level the possible existence of distortions, in particular in the fiscal system, may either increase or alleviate the welfare cost of a climate change policy, as illustrated by the debate on double dividend. Effects on the prices in international markets and distorted competition between countries committed to abate (Annex B) and uncommitted countries affect both the sharing of the burden, in particular through the change in the terms of trade, and the allocation of activities with the frequently waved threat of delocalization. Based on a companion theoretical analysis, the present paper aims at putting order in the welfare analysis of climate change policy and to present and compare various estimations, issuing from macro- or computable general equilibrium models. Beside the global welfare cost, the paper focuses on the marginal abatement cost and its relation to the carbon price.Most present conceptual and applied analysis is based on the case of a single domestic household-consumer. Taking into account several consumers raises new challenges, concerning equity but even more fundamentally the mere definition of fiscal distortion, which have not yet been really addressed.     

Navigating various flexibility mechanisms under European burden-sharing

Environmental Economics and Policy Studies - In July 2016, the European Commission presented its proposal for a regulation to reduce greenhouse gases emissions in sectors not covered by the...     

Combining Stochastic Optimization and Monte Carlo Simulation to Deal with Uncertainties in Climate Policy Assessment

In this paper, we explore the impact of several sources of uncertainties on the assessment of energy and climate policies when one uses in a harmonized way stochastic programming in a large-scale bottom-up (BU) model and Monte Carlo simulation in a large-scale top-down (TD) model. The BU model we use is the TIMES Integrated Assessment Model, which is run in a stochastic programming version to provide a hedging emission policy to cope with the uncertainty characterizing climate sensitivity. The TD model we use is the computable general equilibrium model GEMINI-E3. Through Monte Carlo simulations of randomly generated uncertain parameter values, one provides a stochastic micro- and macro-economic analysis. Through statistical analysis of the simulation results, we analyse the impact of the uncertainties on the policy assessment.     

Meta-Modeling to Assess the Possible Future of Paris Agreement

In the meta-modeling approach, one builds a numerically tractable dynamic optimization or game model in which the parameters are identified through statistical emulation of a detailed large scale numerical simulation model. In this paper, we show how this approach can be used to assess the economic impacts of possible climate policies compatible with the Paris Agreement. One indicates why it is appropriate to assume that an international carbon market, with emission rights given to different groups of countries will exist. One discusses the approach to evaluate correctly abatement costs and welfare losses incurred by different groups of countries when implementing climate policies. Finally, using a recently proposed meta-model of game with a coupled constraint on a cumulative CO₂ emissions budget, we assess several new scenarios for possible fair burden sharing in climate policies compatible with the Paris Agreement.     

Integrated Assessment of Swiss GHG Mitigation Policies After 2012

The residential sector presents a great potential for greenhouse gases (GHG) mitigation. We perform an integrated assessment of different mitigation policies for Switzerland focusing on the residential sector. We analyze the case of pure incentive taxes and technical regulations. For our analysis, we have coupled a general equilibrium model with a Swiss residential energy model. We find that a progressive GHG tax of more than 200 USD2000/tCO₂ eq is necessary to reach a target of 50% reduction of GHG emissions in 2050. Finally, we also find that efficiency-based technical regulations provide limited additional abatement incentives.