Worldwide CO2 Trade without US Jan Gilbreath and Rahi Abdula

Objective of the Experiment  To determine the implications of the exclusion of US from the worldwide CO2 emission trading.  How does the economic/welfare burden shift to Annex 1 countries?  What are the implications for non-Annex 1 countries?

Design of the Experiment

Results  The cost of mitigation increases to $/t C from $/t C when US is included in the system.

 Welfare Effects, In US Bn

 Output and Sectoral Implications  Across the board except USA, there is a substantial fuel switching away from coal and oil.  Despite the relative lower CO2 emission contribution of gas, the gas production declined as well together with the CO2-intensive fossil fuels.  For China and India, expected reduction in coal use seem doubtful, given high dependence on coal.  Results show that substantial reduction in electricity production has to take place in transitional (EEFSU) and developing (CHIND) countries, both expected to have immense demand for energy to fuel their growth

Output and Sectoral Implications

Summary  To meet Kyoto reduction targets without the US, China and India must reduce emissions substantially more, and both countries must cut coal usage nearly in half  EU experiences substantial negative welfare effect – twice those of any other region  All transitional economies must reduce electricity use by 10 percent to 14 percent  Without US participation in CO2 trading, abatement costs rise sharply for all other regions