Balancing the carbon market - Analysing the international carbon market and abatement costs in 2020 for low-concentration targets: policy choices and uncertainties

This study concludes that the degree of ambition for reductions of industrialized (Annex I) and non-industrialized (non-Annex I) countries is the most important policy choice influencing the price and abatement costs. Other less important policy choices include the ambition of United States climate policy and the participation of the developing countries in the global carbon market.

By allowing the use of forest-based options including avoiding deforestation for compliance in a well-designed carbon trading system, the global abatement costs could be reduced by between 25% and 65%. This would also make ambitious mitigation targets more feasible. In addition to the policy choices, important scientific uncertainties, in particular the baseline emissions (i.e. emissions in the absence of climate policy) and the assumed marginal abatement costs, strongly influence the carbon market.

This study has been performed within the framework of the Netherlands Research Programme on Scientific Assessment and Policy Analysis for Climate Change (WAB).