Road transport emissions in the EU Emission Trading System

The report assesses the consequences of including the road sector CO2 emissions in the European allowance trading system. On the one hand such an inclusion will probably mean that the CO2 allowance price will increase. This may have negative consequences for especially the energy intensive industries' competitiveness. On the other hand, the inclusion means that relatively expensive reductions in the sectors not included in the allowance trading system, e.g. transport, may be replaced by cheaper reductions in e.g. the electricity and heat sector. As transport as a good have approximately the same significance as energy, this can be quite significant for the competitiveness of all industrial sectors. In total the inclusion causes a welfare gain in the form of lower European emission abatement costs. Some countries can, however, benefit individually from both lower and higher allowance prices, depending on whether they are net importers or exporters of allowances. The calculations are made with the General Equilibrium model GTAP-ECAT, which have a special focus on the European allowance market.