Conference Agenda

Macroeconomic modelling is widely applied to assess the effects of carbon pricing. However, there remains substantial uncertainty on these effects within and especially across different modelling approaches. This paper, identifies model structure uncertainties and impact chains, i.e. causal relationships inferred in the models, between a Neoclassical Computable General Equilibrium model with two different variants of labor market closure, WEGDYN_AT, and a New Keynesian macroeconomic input-output model, DYNK. Kettner et al. (2023) complement this analysis by identifying robust policy recommendations highlighting dividends and distributional effects. Our analysis shows that model impact chains of carbon pricing policies can differ substantially and structurally between macroeconomic models, especially regarding price channels (i.e., prices of labor, capital, producers, goods and services), income channels (especially assumptions on public budgets and capital income) and consumption channels (especially household reaction to income changes). Differences in aggregate results remain small, but we find significant differences in magnitude and in direction of changes for specific indicators such as consumer price index, income and welfare. Despite these differences, carbon pricing policies remain in all models and scenarios an important instrument to help mitigate carbon emissions. Transparent documentation of model

impact chains can support the identification of robust policy recommendations. Model structure uncertainty analyses should be extended to include more modelling approaches to carbon pricing.

This paper delves into the anticipated impact of the European Union's Carbon Border Adjustment Mechanism (EU CBAM) on its trading partners, with a particular focus on China. Centralizing to China’s critical sectors of iron, steel and aluminum, findings suggest the CBAM may complicate the EU-China trade war, exacerbating trade imbalances. Analysis of various scenarios of potential retaliatory measures and policy alternatives for China reveal possible escalation into a trade conflict between the EU and China, with potential retaliatory measures improving China's welfare but posing economic costs. The EU CBAM may also introduce trade discriminatory implications favoring the EU, raising concerns about WTO compliance. It also suggests the risk that the coercive measures in facilitating collective implementation may be undermined. The complex dynamics between the EU and China underscore the multifaceted challenges and potential consequences associated with the EU CBAM.

Jurisdictions that rely on emissions trading to control emissions often utilize other environmental or energy policies as well, including policies to support renewable energy and reduce energy consumption. Overlapping policies produce economic interactions that can lead to quite different outcomes from what one might predict after examining the individual policies separately. Prior literature on policy interactions has primarily focused on cap-and-trade (CAT) systems, where aggregate emissions are fixed by regulation but emissions prices respond. However, jurisdictions are increasingly turning to alternative forms of emissions markets, including a range of rate-based emissions trading systems, in which both emissions quantities and prices are flexible and the significance of policy interactions is less understood.

This paper extends the literature by considering the implications under a range of ETSs—not only CAT but also several forms of tradable performance standards (TPSs)—of a variety of overlapping policies, including subsidies to renewables and taxes on electricity. An analytical model stylized on the electricity sector demonstrates that an overlapping subsidy to renewable energy drives down emission prices and expands output under all types of ETS, but emissions outcomes differ with TPSs—emissions increase with renewable subsidies under a uniform, sector-wide TPS but decrease when the TPS only covers emitters, excluding clean sources from receiving tradable credits. Taxing electricity consumption reduces emission prices and total output under all ETS types and reduces emissions under all TPSs. With CAT, adding an overlapping renewables subsidy or electricity consumption tax has efficiency costs. Under certain TPSs, however, these measures can reduce distortions and enhance cost-effectiveness.

A numerical general equilibrium model offers quantitative assessments of the impacts of overlaps on emissions, production, prices, and costs, under China’s planned ETS and alternative designs. China’s current policy overlaps reduce the cost difference between its differentiated TPS and CAT by two-thirds, although CAT without overlapping policies would be most cost-effective. Indirect emissions pricing improves price pass-through in rate-based systems. Using tradable portfolio standards to meet renewables targets helps offset the distortions from differentiated benchmarks, especially those excluding renewables, and also implicitly taxes electricity. Furthermore, it does so in a self-adjusting manner, so as not to over-correct when the ETS design gives adequate incentives for clean producers. Our findings highlight the need to consider the choice of ETS and overlapping policies together when undertaking reforms.

his paper investigates how much bilateral trade is affected by temporary disruptions of shipping networks caused by storms. Specifically, we examine how much trade is directed to other shipping routes, other modes of transport, or does not take place at all. We unpack the aggregate impact of oceanic cyclones by examining transportation volume and freight rates by a major container ship company, as well as detailed information on global container ship voyages between 2015-2020. In event-studies nested in a gravity-style equation, we find that a cyclone reduces trade by 2% between countries across all modes of transport, while this effect size doubles for affected port-pairs. After a storm, shipping firms increase freight rates on affected routes amplifying the trading impact. Neighboring port pairs step in as substitutes for industrially relevant goods such as machinery, electrical and intermediate materials, but trade in food is even exacerbated by neighboring port pairs. Following a storm, ships travel at slower speed incurring delay by up to 30hrs depending on shipping company.