Impacts of a Carbon Dioxide Emissions Trading Scheme in German Road Transportation

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Impacts of a Carbon Dioxide Emissions Trading Scheme in German Road Transportation

Mesoeconomic Analysis

Jochem, Patrick

To attempt to counter the possible impacts of global warming, the European Union decided to ratify the Kyoto Protocol and promised to reduce its carbon dioxide (CO₂) emissions by 8%, compared with 1990 levels, by 2010. One of the policies that has been implemented to achieve this is the European Emission Trading Scheme (ETS) for CO₂ certificates. So far, the transportation sector, which contributes about 28% of European CO₂ emissions, has been exempt from ETS, although a further increase in CO₂ emissions from the transportation sector is expected in the coming years. Furthermore, this is the only sector in which emissions have increased (by about 32% since 1990). The inclusion of road transportation in ETS is feasible after 2012. A partial mesoeconomic model was used to assess the impacts of a CO₂ emissions trading scheme in German road transportation. A hypothetical CO₂ emissions trading scheme with an open alternative and a closed alternative was applied to the simulated German road transportation sector. The effects on certificate prices and fuel demand as a result of the individual reactions of households and freight forwarders were calculated. It became apparent that from the current perspective the willingness of households to pay for prestigious (but fuel-inefficient) cars is outweighed by technical mitigation costs in other sectors. Thus, in an open trading scheme without major changes in transportation demand, the main effect will be steady CO₂ emissions in road transportation but large payments to other sectors for mitigation.