Ecolex Logo
The gateway to
environmental law
Search results » Literature

Reaching a climate agreement: compensating for energy market effects of climate policy

Author
Peterson S, Weitzel M
Journal/Series
Climate Policy | Vol. 16 (8), p. 993-1010
Date
2016
Source
IUCN (ID: ANA-091036)
Publisher | Place of publication
Taylor & Francis | Oxon, United Kingdom
ISSN
1469-3062
Document type
Article in periodical
Language
English
Field of application
International
Subject
Environment gen.
Keyword
Environmental fees/charges Policy/planning Climate change Tax/levy
Abstract

Because of large economic and environmental asymmetries among world regions and the incentive to free ride, an international climate regime with broad participation is hard to reach. Most of the proposed regimes are based on an allocation of emissions rights that is perceived as fair. Yet, there are also arguments to focus more on the actual welfare implications of different regimes and to focus on a ‘fair’ distribution of resulting costs. In this article, the computable general equilibrium model DART is used to analyse the driving forces of welfare implications in different scenarios in line with the 2 °C target. These include two regimes that are often presumed to be ‘fair’, namely a harmonized international carbon tax and a cap and trade system based on the convergence of per capita emissions rights, and also an ‘equal loss’ scenario where welfare losses relative to a business-as-usual scenario are equal for all major world regions. The main finding is that indirect energy market effects are a major driver of welfare effects and that the ‘equal loss’ scenario would thus require large transfer payments to energy exporters to compensate for welfare losses from lower world energy demand and prices.