FEEM working papers "Note di lavoro"
2013.100

A Quantitative Assessment of the Implications of Including non-CO2 Emissions in the European ETS


Authors: Carlo Orecchia, Ramiro Parrado
JEL n.: Q5, Q58
Keywords: CGE, Greenhouse gas emissions, Cap-and-trade system, Agriculture, Non-CO2 emissions, European Union, Effort Sharing Decision

Abstract

Although CO2 emissions stand for most of greenhouse gas (GHG) emissions, the contribution of mitigation efforts based on non-CO2 emissions is still a field that needs to be explored more thoroughly. Extending abatement opportunities to non-CO2 could reduce overall mitigation costs but it could also exert a negative pressure on agricultural output. This paper offers insights about the first effect while provides a preliminary discussion for the second. We investigate the role of non-CO2 GHGs in climate change mitigation in Europe using a computable general equilibrium (CGE) model. We develop a specific modelling framework extending the model with non-CO2 GHGs as an additional mitigation alternative. These modifications allow us to analyse the implications for the European Union (EU) of including non-CO2 GHG emissions in its cap and trade system. We distinguish two targets on all GHG emissions  for 2020, a reduction by 20% and 30% with respect to 1990 levels. Within each reduction cap, we consider two mitigation opportunities by means of a carbon tax levied on: 1) CO2 emissions only, and 2) All GHGs emissions (both CO2 and non-CO2 GHG). Results show that a multi-gas mitigation policy would slightly decrease policy costs compared to the CO2 only alternative.

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Suggested citation: Orecchia, C., R. Parrado, 'A Quantitative Assessment of the Implications of Including non-CO2 Emissions in the European ETS', (2013), Nota di Lavoro 100.2013, Milan, Italy: Fondazione Eni Enrico Mattei.

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