Analysis of post-Kyoto CO₂ emissions trading using marginal abatement curves

Abstract

Marginal abatement curves (MACs) are often used heuristically to demonstrate the advantages of emissions trading. In this paper, the authors derive MACs from EPPA, the MIT Joint Program's computable general equilibrium model of global economic activity, energy use and CO₂ emissions, to analyze the benefits of emissions trading in achieving the emission reduction targets implied by the Kyoto Protocol. The magnitude and distribution of the gains from emissions trading are examined for both an Annex B market and for full global trading, as well as the effects of import limitations, non-competitive behavior, and less than fully efficient supply. In general, trading benefits all parties at least some, and from a global standpoint, the gains from trading are greater, the wider and less constrained is the market. The distribution of the gains from trading is, however, highly skewed in favor of those who would face the highest costs in the absence of emissions trading.