Wide and narrow approaches to national emission policies: a case study of Spain

What are the effects of emissions trading on a particular country? The efficiency and distribution effects associated with the implementation of the European Union Emissions Trading Scheme (EU ETS) in Spain were modelled using a static general equilibrium model. Three scenarios were examined for cost-effectiveness and fairness: a real market as established by the National Allocation Plan (NAP); a wider (hypothetical) market applied to most sectors; and a (hypothetical) auctioned market. The actual and desirable regulatory impacts were also modelled. The results indicate that the narrow scope of the EU emissions trading market generates efficiency costs and relevant distributional effects, which may therefore be useful for the design and application of future Spanish policies and strategies to comply with short- and medium-term targets. Although the focus is on Spain, the understanding of different sectoral effects and the potential for complementary mechanisms provides a wider insight into the design of future mechanisms.