Press Release: Report Shows International Emissions Trading Can Reduce the Costs of Climate Change

For Immediate Release:
December 14, 1999

Contact: Kelly Sullivan/Laurie Casaday
202-289-5900

Report Shows International Emissions Trading Can Reduce the Costs of Climate Change
Broader Participation in Trading Yields Greater Benefits

WASHINGTON, D.C. - A new report released today by the Pew Center on Global Climate Change highlights the importance of international emissions trading in reducing the costs of climate change. An international greenhouse gas emissions trading regime would significantly lower global mitigation costs, the report states.

The report, International Emissions Trading & Global Climate Change: Impacts on the Costs of Greenhouse Gas Mitigation [1], finds that compliance costs for parties limiting their greenhouse gas emissions can be lowered by providing greater flexibility in trading mechanisms, such as allowing trading across emissions sources, and allowing trades to occur over time.

"As policy-makers explore ways to meet the global challenge of climate change, emissions trading should be high on their agenda," said Eileen Claussen, President of the Pew Center on Global Climate Change. "Greenhouse gases released anywhere in the world can contribute to changes in global temperatures. International emissions trading capitalizes on this by allowing the lowest cost emissions reductions to occur first."

While broader participation in trading is likely to yield greater benefits, any amount of trading will lower the costs for those participating, the report states.

"If a climate policy regime is in place that allows emissions trading, all parties, with or without obligations, are better off trading than not," said Claussen, who noted that issues of program design and institutional structure must be addressed carefully to realize the full economic potential of trading regimes.

The report is the first in a series designed to explore how economic models address the climate change issue. It was researched and written by Jae Edmonds, Mike Scott, Joe Roop and Chris MacCracken of Battelle of Washington, D.C. for the Pew Center on Global Climate Change.

A number of global economic models have been used to access the effects of emissions trading. The models conclude that:

• Costs of controlling carbon emissions would be significantly lower if emissions trading is permitted than if each nation has to meet its emissions reduction responsibilities alone. The broader the trade possibilities, the lower the costs of control.
• All parties with greenhouse gas emissions mitigation obligations benefit from trade.
• Given a regime that allows trading, parties without obligations will be better off trading than not trading.
• Because the costs of fuels could be affected by emissions control and emissions trading, countries and regions may be affected whether or not they participate in emissions reductions and emissions trading.
• Gains from trade are sensitive to the difference between the base case and target emissions and to the difference in marginal (incremental) abatement costs between countries.
• The actual cost savings from trade in emissions are likely to be less than the theoretical savings shown in most analyses performed with integrated assessment models because these models do not include the various measurement, verification, trading and enforcement costs that would and should characterize any real trading system.

"International trade holds the potential of reducing costs of controlling world emissions of greenhouse gases because the nations of the world experience very different costs for achieving emissions reductions on their own," Claussen said.

A complete copy of the report is available on the Center's web site, www.c2es.org [2].

The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of American's environment. The Pew Center is conducting studies, launching public education efforts, promoting climate change solutions globally and working with businesses to develop marketplace solutions to reduce greenhouse gases. The Pew Center is led by Eileen Claussen the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

The Pew Center includes the Business Environmental Leadership Council, which is composed of 21 major, largely Fortune 500 corporations working with the Pew Center to address issues related to climate change. The companies do not contribute financially to the Pew Center, which is solely supported by contributions from charitable foundations.