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CAKE at International Macromodels Conference
On 19-21 November 2024, Jakub Boratyński, an expert from CAKE, took part in the International Macromodels 2024 Conference held in Jablonna, which was devoted to economic modelling and policy, as well as advanced econometric methods.
A representative from the CAKE team presented an analysis of the effects of combining the EU ETS with other global carbon pricing mechanisms. Other topics covered included:
- fuel availability,
- linkages in energy markets,
- social policy impacts,
- pressing global and regional challenges.
During the presentation, an expert from the CAKE team presented the detailed conclusions of the analysis of the linking EU ETS with other the global ETS’s.
- Reduction of allowance prices in the EU ETS: EU ETS linkage leads to a reduction in the allowance prices in EU ETS 1 and 2 of €40-60/t, with an additional €25-55/t due to the inclusion of offsets.
- Import of allowances from other schemes: CAKE estimates an import of allowances of 270 Mt in 2035, decreasing to 70 Mt in 2050. The annual value of imported allowances is estimated to be around €30bn.
- Economic growth and profits for exporters: ETS integration favours exporters, especially in energy-intensive sectors and air and maritime transport. GDP growth is expected to be 0.2-0.3% per year (around €60 billion), but these benefits are limited by adverse changes in the terms of trade.
- Limited consumption benefits: Household consumption growth is relatively low, at less than 0.1% (around EUR 7-10 billion per year). Short-term investment growth comes at the expense of consumption.
- Demand for offsets: The cost of offsets was estimated at around €10bn per year, with volumes decreasing from 150 Mt in 2035 to 60 Mt in 2050.
- Importance of accurate models: The results are strongly dependent on assumptions, in particular regarding trade elasticities and the Armington specification. Further refinement of the general equilibrium (CGE) model could produce more accurate results, taking into account abatement, investment and technology costs.
