Economic impact assessment of Turkey's post-Kyoto vision on emission trading

Abstract

For the post-Kyoto period Turkey strongly emphasizes the establishment of national emission trading system by 2015 and its integration with the EU ETS along its accession process to the EU. In this paper we study the mechanisms of adjustment and economic welfare consequences of various ETS regimes that Turkey considers to apply by 2020 i.e. regional ETS and international trading within the EU ETS. We conduct our analysis under the current EU 20-20-20 emission target 20% and also under its revised version 30%. We find that Turkey has economic gains from linking with the EU ETS under the 20% cap in comparison to the domestic ETSs. Despite the EU's welfare loss under linkage in comparison to the case where Turkey has domestic abatement efforts it still prefers linking as it increases economic well being compared to the case where Turkey does not abate. Under 30% cutback Turkey has critical output loss under linkage due to high abatement burden on the EU while the EU is better off as it passes some of its abatement burden to Turkey. Therefore emission quotas and their allocation across the ETS and non ETS sectors become highly critical in distributing the overall economic gains from bilateral trading. (C) 2013 Elsevier Ltd. All rights reserved.