U.S. Re-entry into the 2015 Paris Climate Agreement and Implications for the EU, Korea, China, and Japan: A CGE Approach

Abstract

Purpose - With renewed greenhouse gas (GHG) emissions, abatement commitments and the rejoining of the Paris Climate Agreement of 2015 by the U.S., this study assesses the impact of carbon dioxide (CO₂) emissions reduction, and the opportunity cost of the U.S. in implementing its nationally determined commitments (NDCs). Design/Methodology/Approach - The study employs the GTAP-E model, an extension of the static GTAP model with CO₂ emissions trading, and GTAP DB version 10A with a base year of 2014. Model implementation includes a baseline scenario that projects the global economy from 2014 to 2030, and four policy scenarios representing the implementation of U.S. NDC targets without and with emissions trading. Findings - Simulation results suggest that CO₂ emissions reduction with trading significantly lowers the emissions abatement cost compared to CO₂ emissions reduction with no trading. Furthermore, the study finds that CO₂ emissions reduction leads to a drop in industry output by all energy and most non-energy sectors. Simulation results illustrate that CO₂ emissions reduction by the U.S. significantly affects most of its trading partners’ real GDPs, welfare, export and import flows, and industry outputs. Research Implications - The study provides a comprehensive impact assessment of global CO₂ emissions reduction, including U.S. contributions to addressing climate change. Moreover, the study has quantified the opportunity cost the U.S. will likely pay for meeting its NDC targets, and the likely impact of CO₂ emissions reduction by the U.S. on its major trading partners, especially the EU, Korea, Japan, and China.