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We use data from the World Input-Output Database to examine channels through which CO2emissions are embodied within, and imported into, the European production in 2005 and in 2009. We use an input–output price model to simulate the effect that a rise in the price of emissions trading system (ETS) allowances would have on the final price of goods. We find a reduction in emission intensity, which was greatest in those sectors regulated under ETS. Finally we examine the trade between China and the EU to study possible increases in carbon leakage. Results show that emissions embodied in imported intermediate goods have increased in all sectors. [ABSTRACT FROM AUTHOR]

The process of calculating market clearing prices for cap and trade environmental pollution policies dealing with both air and water pollution remains problematic. The permit trading processes are designed to mimic the cost minimisation outcome. In the paper we design the market process for allocating permits to achieve the same type of behaviour we observe for each decision maker in the overall cost minimisation model. We aim to develop a modelling system that would be easy and efficient to operate. We use the method which is known as a computer-assisted ‘smart market’ and has been used in a number of electric energy pricing situations. This approach has also been proposed and applied to some types of environmental quality and resource management policies. In the paper the theoretical structure of the ‘smart market’ model is provided. After the review of different models that have been used to represent permit trading situations, the smart market model structure based on the shadow prices is developed. [ABSTRACT FROM AUTHOR]

The study analyzes the performance of an innovative cap-and-trade program designed to make cost-effective reductions of an ozone precursor in Chicago and finds that decentralized market incentives were undermined by the continuance of centralized traditional emission point or command-and-control regulation. The study makes two contributions for urban areas considering this regulatory measure: it shows that using two regulatory measures to achieve one emissions reduction goal can undercut cost-effective emissions trading, and it provides a redesign of the market system that coordinates both regulatory measures for cost-effective control and avoidance of trading problems, such as hot spots and inter-temporal spikes. [ABSTRACT FROM AUTHOR]