Taran Fæhn*, Karl Jacobsen*, and Birger Strøm

3.2 II: The trustworthy scenario with domestic target

Assumptions

In the second scenario, we include the target of meeting 2/3 of the global cap by domestic abatements. The global target is then met with more certainty, but at higher costs. We still assume Norway has international allowance commitments. In this scenario, the policy instrument is a trustworthy climate tax imposed on all emissions sources. A national emission price will require the EUETS sector to pay the Norwegian government an additional price determined by the market for their emissions so as to even out the difference between the EUETS allowance price and the national allowance price.

Impact on domestic emissions and allowance trading

Longer term domestic emission reductions will be determined by how the national emission ceiling is scaled down relative to emissions in the reference path  cf. figure 4. As the figure shows, the national allowance cap lies higher than the annual global targets set by the country. It means that the country as a whole will have to buy allowances abroad in addition to making national cuts.

Figure 4: Reference path emissions, national emissions ceiling and the country’s global emissions ceiling, in million metric tonnes CO₂ equivalents


The price in the national allowance trading market will make adjustments to enable the implementation of the necessary measures. The evolution of the emissions price is shown in figure 5.