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International Trade in Oil, Gas and Carbon Emission Rights: An Intertemporal General Equilibrium Model

Abstract:
This paper employs a five-region intertemporal model to examine three issues related to carbon emission restrictions. First, we investigate the possible impact of such limits upon future oil prices. We show that carbon limits are likely to differ in their near- and long-term impact. Second, we analyze the problem of "leakage" which could arise if the OECD countries were to adopt unilateral limits upon carbon emissions. Third, we quantify some of the gainsfrom trade in carbon emission rights. Each of these issues have been studied before, but to our knowledge this is the first study based on a multi-regional, forward-looking model. We show that sequential joint maximization can be an effective way to compute equilibria for intertemporal general equilibrium models of international trade.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Natural Gas – Markets and Prices; Energy and the Environment – Climate Change and Greenhouse Gases

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q54 - Climate; Natural Disasters and Their Management; Global Warming

Keywords: Oil, natural gas, trade, carbon emission rights, CGE model

DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No1-4


Published in Volume15, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.