Comparing Carbon Regulation Scenarios for BRICS and EAEU Economies Using a GTAP-E Model

Abstract

The paper compares the economic effects of a national carbon tax with those of an emission trading system (ETS) between EAEU and BRICS countries over the medium term. Also included are Uzbekistan, which has observer status in the EAEU, and Turkmenistan, which is an EAEU trade and economic partner. The static computable general equilibrium model GTAP-E is employed. Targets for reducing emissions are formulated on the basis of the countries’ intermediate goals as stated in their respective submissions under the Paris Agreement. The resulting simulations show that, in terms of real GDP, an emission trading scheme would be more favorable than national taxation for countries such as Brazil, India, Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan. However, for China, South Africa, Uzbekistan and Turkmenistan, resorting to an ETS would produce a comparatively greater reduction in GDP. Because the second group of countries has lower abatement costs than the equilibrium carbon price under an ETS, that scenario would permit those countries to reduce emissions by a greater amount and sell emission allowances. The analysis also shows which sectors would increase production after carbon regulation. A considerable increase in production and exports would occur for chemicals and for ferrous and nonferrous metals in several BRICS and EAEU countries. Although those industries are energy-intensive, the countries concerned could decrease emissions by reducing production in the energy or other sectors. These industries could benefit from potential joint comparative advantages in the context of declining demand for traditional energy sources. These findings should be valuable in devising integration policy.