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GTAP Resource #1237

"A Computable General Equilibrium Assessment of a Developing Country Joining an Annex 1 Permit Trading Market."
by Kemfert, Claudia and Hans Kremers

Recently, two developing countries, China and India, announed that they are willing to join the Annex I countries in ratifying the Kyoto Protocol. Formally, this means that these countries will be asked to stabilize their carbon emissions at 1990 levels by the year 2012. But is this the correct way to go given the specific problems that these countries face in their stage of development, such as the lack of reliable data on emissions in 1990, or the limitations that a strict limit on emissions imposes on the growth-rate in these developing countries.

This paper considers the situation where the Annex 1 countries have an emission permit market for 2012 and forward in place. The Annex 1 emission market is modelled using an intergovernmental trading model, where governments decide not to allocate the assigned amounts to the production sectors, and retain the sole right to trade. Each production sector then decides whether to control emissions or to buy sufficient permits to cover their emissions by comparing the control costs with the market price of permits. This is referred to as the 'benchmark scenario'. It then studies the consequences of a developing region, China, joining the Annex 1 regions on this permit market under the following regimes of allocating an initial endowment of emission permits to China:

1. (Kyoto) China is allocated its official 1990 level of CO2 emissions
as its initial endowment of permits.

2. (United States) China is assumed to adopt emission growth targets equal
to its 2010 benchmark emissions level.

3. (Center for Clean Air Policy) China's emissions target is established by tying its emissions budget to improvements in the ratio of carbon emissions to gross domestic product.

We use WIAGEM, which is a recursive dynamic multi-regional general
equilibrium model. The regional aggregation we take consists of the Annex 1 regions, China, and the rest of the world. The sectoral aggregation in each region consists of fourteen production sectors among which five energy sectors. Primary production factors are capital, labour, and land. In this setup, the study focusses on the particular problems faced when a developing country wants to join a permit market.

Resource Details (Export Citation) GTAP Keywords
Category: 2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Created: Kremers, H. (4/28/2003)
Updated: Bacou, M. (4/30/2003)
Visits: 3,351
- Climate change policy

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