Skip to main content
Disciplines
Automotive Business IT + Informatics Construction + Real Estate Electrical Engineering + Electronics Energy + Sustainability Insurance + Risk Finance + Banking Management + Leadership Marketing + Sales Mechanical Engineering + Materials
Events
DE
EN
Books
Journals
Topic Page
Marketing
Start single access now
Access for companies
EXTENDED SEARCH
Log in
Top
Mitigation and Adaptation Strategies for Global Change
Published in: Mitigation and Adaptation Strategies for Global Change 7/2012

01-10-2012 | Original Article

Oil price scenarios and climate policy: welfare effects of including transportation in the EU emissions trading system

Authors: Asbjørn Torvanger, Steffen Kallbekken, Petter Tollefsen

Published in: Mitigation and Adaptation Strategies for Global Change | Issue 7/2012

Login to get access

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

The stringency of policies needed to meet a climate target is influenced by uncertain oil prices because price changes cause emission changes, making the robustness of climate policy instruments important. As a result of its dependence on oil, emissions from the transport sector are particularly sensitive to oil price changes. We use a computable general equilibrium model to study the effects of including the transport sector in the EU’s emissions trading scheme under three future oil price scenarios. Our results show that there are potentially significant welfare gains from including transportation in the emissions trading scheme because the system as a whole helps absorb required changes in climate policy to meet the overall EU cap on emissions. There is, however, a cost in terms of somewhat greater permit price uncertainty.
previous article Perceptions of climate change risks and resilient island planning in the Maldives
next article CO2-emission reduction in China’s residential building sector and contribution to the national climate change mitigation targets in 2020
Appendix
Available only for authorised users
Footnotes
1
Another dimension, not covered in this study, is the timing of introducing changes in instrument use.
 
2
This assumes that the substitution effect from coal to oil is dominated by the price effect on oil consumption.
 
3
They may have an effect if competitive carbon capture and storage technologies are implemented with a fast ramp-up on a very large scale.
 
4
He also finds that the large tax interaction effect from high fuel taxes in Europe means that welfare would be highest if transportation is exempted from emissions regulation.
 
5
The Clean Development Mechanism (CDM) and Joint Implementation (JI) are emissions trading mechanisms under the Kyoto Protocol.
 
6
Consider the failed attempt to introduce a combined energy and CO2 tax in the EU in 1992–1994.
 
7
In the DEEP model, the consumer (household+government) can substitute between oil and other energy inputs. The elasticity of substitution is set to be 0.3. The (implicit) price elasticity of oil demand is lower than in many other CGE models, but this value could be higher than empirical estimates.
 
8
The length of the periods does not affect the results, but it does matter for whether the model solves or not.
 
9
Keep in mind that all assumptions that do not vary between the policy options will not affect the comparisons between the options, but they will affect the total level of welfare, prices and other factors.
 
10
In our model the transport sector includes refined petroleum products (oil) used by households. The GTAP data base does not allow us to differentiate between oil used for transport and oil used for heating or other purposes. However, Paltsev et al. (2004) estimated that transport accounts for 85.5% of oil use in the household sector in the EU, so the assumption that all oil use belongs to the transport sector is a permissible simplification in our view. We also assume that national fuel taxes remain unchanged because these are not decided by EU policy.
 
11
This assumption is based on the reasoning that many of the sectors that are exempted from the EU ETS are exempted because of concerns over their competitiveness, and one should therefore expect that the (shadow) price on carbon they will face will be lower than the EU ETS permit price. For analytical simplicity, we assume that the carbon price of non-ETS sectors is one-half of the ETS carbon price. Changing this carbon price assumption (e.g. assuming a carbon price equal to two-thirds of the EU ETS price instead) would affect welfare and price levels, but it would not affect the ranking of policy options.
 
12
Oil prices change by roughly the same percentage in all regions, but not exactly the same percentage owing to different tax rates and the Armington assumption (which implies prices are not necessarily equalized by trade).
 
13
Keep in mind that we are comparing differences in welfare between the different policy options and not between the oil price scenarios. Absolute welfare is higher when the oil price is low, but the welfare loss of adopting a sub-optimal climate policy is greater when the oil price is low.
 
Literature
Abrell J (2006) Transportation and emission trading—a CGE analysis for the EU 15. WP-EGW-01, Dresden University of Technology, Chair for Energy Economics and Public Sector Management
Abrell J (2009) Regulating CO2 emissions of transportation in Europe: a CGE-analysis using market-based instruments. WP-EGW-06, Dresden University of Technology, Chair for Energy Economics and Public Sector Management
Blom MJ, Kampmann BE, Nelissen D (2007) Price effects of incorporation of transportation into EU ETS. Report, September, CE Delft, Delft
Böhringer C, Rutherford TF, Tol RSJ (2009) The EU 20/20/2020 targets: an overview of the EMF22 assessment. Energy Economics 31:268–273CrossRef
British Petroleum (2007) Statistical review of world energy 2007. British Petroleum, London
Dimaranan BV (ed) (2006) Global trade, assistance, and production: the GTAP 6 data base. Center for Global Trade Analysis, Purdue University, West Lafayette
Energy Information Administration (EIA) (2007) International Energy Outlook 2007. U.S. Department of Energy, Washington
European Parliament and Council (EPC) (2000) Decision No 1753/2000/EC of the European Parliament and of the Council of 22 June 2000 establishing a scheme to monitor the average specific emissions of carbon dioxide from new passenger cars. Official Journal of the European Union, Luxembourg. http://​europa.​eu/​scadplus/​leg/​en/​lvb/​l28055.​htm
International Energy Agency (IEA) (2008) World Energy Outlook 2008. OECD/IEA, ParisCrossRef
International Energy Agency (IEA) (2009) World Energy Outlook 2009. OECD/IEA, ParisCrossRef
Kallbekken S (2004) A description of the Dynamic analysis of Economics of Environmental Policy (DEEP) model. CICERO Report 2004:01, CICERO, Oslo
Kallbekken S, Hovi J (2007) The price of non-compliance with the Kyoto Protocol: the remarkable case of Norway. International Environmental Agreements 7(1):1–15CrossRef
Kallbekken S, Westskog H (2005) Should developing countries take on binding commitments in a climate agreement? An assessment of gains and uncertainty. Energy Journal 26(3):41–60
Nakicenovic N, Swart R (2000) Special report on emissions scenarios. Cambridge University Press, Cambridge
Paltsev S, Viguier L, Babiker M, Reilly J, Tay KH (2004) Disaggregating household transport in the MIT-EPPA model. MIT Technical Note, No. 5, July
Rive NA, Torvanger A, Berntsen T, Kallbekken S (2007) To what extent can a long-term temperature target guide medium-term climate change commitments? Climatic Change 82:983–991CrossRef
Rogner HH, Zhou D, Bradley R, Crabbé P, Edenhofer O, Hare B, Kuijpers L, Yamaguchi M (2007) Introduction. In: Metz B, Davidson OR, Bosch PR, Dave R, Meyer LA (eds) Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press, Cambridge
Rutherford TF, Paltsev SV (2000) GTAP-Energy in GAMS: the dataset and static model. Working Paper No. 00-2, Department of Economics. University of Colorado, Boulder, USA
Metadata
Title
Oil price scenarios and climate policy: welfare effects of including transportation in the EU emissions trading system
Authors
Asbjørn Torvanger
Steffen Kallbekken
Petter Tollefsen
Publication date
01-10-2012
Publisher
Springer Netherlands
Published in
Mitigation and Adaptation Strategies for Global Change / Issue 7/2012
Print ISSN: 1381-2386
Electronic ISSN: 1573-1596
DOI
https://doi.org/10.1007/s11027-011-9342-6

Other articles of this Issue 7/2012

Mitigation and Adaptation Strategies for Global Change 7/2012 Go to the issue

Original Article

CO2-emission reduction in China’s residential building sector and contribution to the national climate change mitigation targets in 2020

Original Article

Natural and effective control of air pollution through plants- studies on a tree species: Holoptelea integrifolia L.

Original Article

Assessment of trophic change and its probable impact on tropical estuarine environment (the Kodungallur-Azhikode estuary, India)

Original Article

Need for adaptation strategy against global sea level rise: an example from Saudi coast of Arabian gulf

Original Article

Incorporating stakeholder decision support needs into an integrated regional Earth system model

Original Article

Perceptions of climate change risks and resilient island planning in the Maldives