Economy-Wide Analysis of Including Aviation into the European Emission Trading Scheme: A Case Study of Taiwan

• Main Authors: Chen, Yichih, 陳奕緻
• Other Authors: Lee, Tsungchen
• Format: Others
• Language: en_US
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/67862170990643130815

碩士 === 國立臺北大學 === 經濟學系 === 100 === International aviation has been recognized as a potential threat in CO2 emissions due to its rapid expansion as well as future growth caused by globalization. In view of this, the EU unilaterally decides to incorporate aviation sector in the EU-ETS. The EU is a major trading partner for Taiwan in terms of business, travel, electronic and machinery equipment. Therefore, the inclusion of aviation industry into the EU-ETS in 2012 will affect Taiwanese economy through the channel of international trade and the associated transport costs. Accordingly, this thesis applies an integrated multi-region, multi-sector CGE model, named Global Trade Analysis Project (GTAP), to estimate the impacts of including the aviation industry into the EU-ETS. We focus on the impacts on Taiwanese macro-economy, and analyze the changes in gross domestic product, industrial structure, trade flows between Taiwan and the EU, and welfare effects. The advantage of adopting the GTAP model is that it can provide ex-ante simulation analyses; and that it enables broad exploration of economy adaptation as well as trade patterns changes in respond to the policy reforms. In the thesis, the effects of including the aviation industry into the EU-ETS are divided into the direct and indirect shocks. The direct impact is equivalent to an increase in tax on Taiwan’s aviation service exporting to the EU. The indirect effect is the increase in freight costs of aviation industry from Taiwan to the EU, and the increased costs result in technological decline of Taiwanese aviation sector. Based on our simulation results, inclusion of aviation into the EU-ETS has negligible negative effects on Taiwan’s gross domestic product. Even under the scenario of shocking both the direct and indirect effects with the highest carbon price ?80/tCO2, the GDP merely decreases 0.0097% (US $38.195 millions) in Taiwan. The output changes of Taiwan’s industries are insignificant. The production of the air transport sector has the most significant decrease at the sub-scenario of shocking both the direct and indirect effects with carbon price ?80/tCO2. There is a 0.826% output reduction (US $52.1949 millions) in this scenario. Furthermore, the changes of trade flows between Taiwan and the EU are small. Among those EU countries trading with Taiwan, Germany has significant negative results in the changes of trade flows under the scenario of shocking both the direct and indirect effects with carbon price ?80/tCO2. The value of electronic equipment exports from Taiwan to Germany decreases $31.98 million USD, and the value of air transport exports from Taiwan to Germany decreases $14.38 million USD. On the other hand, the decrease in trade flows of machinery and equipment nec as well as other manufacture imports from Germany to Taiwan are US $0.79 millions. As for welfare decomposition, both the endowment effects and terms of trade effects dominate Taiwan’s welfare loss. In the scenario of shocking both the direct and indirect effects with carbon price ?80/tCO2, the endowment decreases US $23.7373 million and the terms of trade falls US $26.0357 million in Taiwan.