A developing Asia emission trading scheme (Asia ETS)

This paper provides a model assessment of the role of developing Asia in the context of climate change policies. We diagnose the potential response of Asian economies to the imposition of various climate policies, showing that if we were to equally price carbon across the world roughly half of the abatement would occur in developing Asia. We show that such autarkic measures would be consistent with the policy targets put forward by the Major Economies Forum but would not necessarily be equitable. We thus propose a fragmented cap-and-trade scheme with a specific regional market for developing Asia, the Asian Emission Trading Scheme (Asia ETS). We assess the role of the Asia ETS on the macro-economy and international transfers vis-à- vis the standard case of global trading. Our results indicate that creating two large trading markets would result in small global efficiency losses, while at the same time generating more reasonable regional incentives and transfers.

► Until 2050 a regional market for emissions in Asia (Asia ETS) would: ► Provide all emissions credits that Asia might demand in 2050. ► Reduce the price of carbon in the region and the cost of mitigation for China. ► Reduce the financial imbalances caused by extremely high volumes of carbon trade. ► Increase only marginally the cost of climate policy in OECD economies.