A model intercomparison of the welfare effects of regional cooperation for ambitious climate mitigation targets

This paper presents the overall and distributional welfare effects of alternative multi-regional emissions trading coalitions relative to unilateral action. It focusses on meeting Paris Agreement pledges and more emissions reduction targets consistent with 2^∘C and 1.5^∘C temperature pathways in 2030. The results from seven computable general equilibrium (CGE) models are compared. Across all models, welfare gains are highest with a global market and increase with the stringency of targets. All regional coalitions also show overall welfare gains, although lower gains than the global market. The models show more variability in the gains by a participant. Depending on the model, participants may benefit more from some regional arrangements than from a global market or face modest losses compared to the domestic reductions alone, due to interactions between carbon targets and fossil fuel markets. The scenario with a joint China–European Union emissions trading system in all sectors is consistently favorable for participants and provides the highest economic gains per unit of emissions abated.