Models for the analysis of international interrelations of the EU ETS and of a CBAM - Summary

Abstract

Two types of large-scale models with different modelling philosophies are used to quantify socioeconomic effects in scenarios in which the EU moves forward in climate policy and applies different design options under the EU emissions trading system (ETS) combined with a Carbon Border Adjustment (CBAM).One model, GEM-E3, is a computable general equilibrium model that follows neoclassical theory, while the other model, GINFORS-E, is a macroeconometric model that follows a post-Keynesian approach. The results of both models suggest that an effective CBAM plays a significant role in reducing the risk of carbon leakage. The key results on trade, production and emission effects also show, by and large, little quantitative variation between the two models, in spite of their different philosophies. The overall report consists of four separate reports next to this Summary Report:The Central Report covers the results of the key policy scenarios on the EU-ETS design regarding allocation and the CBAM. It also includes some key sensitivity analyses on trade assumptions, climate policy ambition in major trading partner countries, and on the scope of the CBAM;The Technical Report documents how the two models have been harmonised in terms of external assumptions on, e.g., global population, GDP development and on energy prices. This is followed by exploratory scenario runs that address the impact of the EU moving forward versus the case that global uniform CO2 prices achieve either a 2 degrees, or a 1.5 degrees climate policy goal.A further report provides an overview of existing models that are capable of representing issues of carbon leakage and of policies that address it. The report focuses on the two types of models applied in this project’s modelling work (CGE and macroeconometric), but also covers prominent partial equilibrium (energy system) models and Integrated Assessment Models (IAM);Finally, a journal article analysing integrated assessment models used for highly aggregated assessment scenario analyses with a time horizon until 2100.