Economic effects of national systems of CO2-emission trade: national dilemmas at a global problem

It considers several implementations, with as a base variant a system in which the sheltered sectors are subject to an absolute emission ceiling, while the exposed sectors are subject to a relative ceiling, based on a performance benchmark for their CO2-efficiency. The economic effects of this system are compared to the effects of a system with an absolute ceiling for all sectors, and the effects of the current national climate policy, in which the Regulatory Energy Tax system and the voluntary agreements are dominant.

The results show that the system in the base variant performs best in terms of a net national income measure of welfare. A uniform emission ceiling yields a lower CO2- price, but also a lower national income, due to the relocation of energy-intensive exposed sectors across the border. Increasing energy taxes within the current tax system and continuation of the current voluntary agreements is also less efficient.

The paper concludes, however, that from an economic point of view, a national system of CO2-trading is an expensive policy instrument, due to the high transaction costs of the performance benchmark and the distinction between sheltered and exposed sectors. The first-best option is to impose CO2-emission trading with an absolute ceiling on an international level. Since the implementation of an international system of emission trading is uncertain, it may be useful to analyse the requirements for an efficient national system. In the meantime, improving the design of the conventional regulatory energy tax system may be an attractive alternative.

This publication is in Dutch.