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Intra-Union Flexibility of Non-ETS Emission Reduction Obligations in the European Union

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Author Info

  • Tol, Richard S. J.

    (Economic and Social Research Institute (ESRI))

Abstract

The current EU proposal on greenhouse gas emission reduction has 28 targets for 2020: an EU-wide one for carbon dioxide emissions covered by the European Trading System, and one target for non-ETS emission per Member State. Implementation is necessarily more expensive than needed. I consider three alternative proposals to reduce costs. In the Irish proposal, Member States can purchase ETS permits to offset excess non-ETS emissions. In the Polish proposal, Member States can sell excess non-ETS emissions in the ETS. In the Swedish proposal, Member States can trade their non-ETS allocations. I compare these three alternatives to the default policy (no flexibility outside the ETS) and to the cost-effective solution (full flexibility). I calibrate a simple model to the results of the impact assessment of the European Commission. This reveals that European Commission did not fully disclose all details, and that odd assumptions were made. In the case of three Member States, the non-ETS allocation exceeds the projected emissions. The results show that the alternative flexibility mechanisms would be used to only a limited extent, but would help to suppress the costs of meeting the target. The Swedish and Polish proposals come closest to the cost-effective solution as full use is made of the hot air in the non-ETS system. The Irish proposal performs best if there are negative surprises in either the cost of non-ETS emission reduction or non-ETS emission projections.

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File URL: http://www.esri.ie/UserFiles/publications/20080923091428/WP256.pdf
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Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP256.

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Length: 33 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:esr:wpaper:wp256

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Keywords: Climate change; Emissions trade; European Union;

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References

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  1. Böhringer, Christoph & Hoffmann, Tim & de Lara Peñate, Casiano Manrique, 2005. "The Efficiency Costs of Separating Carbon Markets Under the EU Emissions Trading Scheme: A Quantitative Assessment for Germany," ZEW Discussion Papers 05-06, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  9. Manne, Alan & Richels, Richard, 1996. "The Berlin Mandate: The costs of meeting post-2000 targets and timetables," Energy Policy, Elsevier, vol. 24(3), pages 205-210, March.
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Citations

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Cited by:
  1. Harmsen, Robert & Eichhammer, Wolfgang & Wesselink, Bart, 2011. "Imbalance in Europe's Effort Sharing Decision: Scope for strengthening incentives for energy savings in the non-ETS sectors," Energy Policy, Elsevier, vol. 39(10), pages 6636-6649, October.
  2. Stephane De Cara & Pierre-Alain Jayet, 2011. "Marginal abatement costs of greenhouse gas emissions from European agriculture, cost effectiveness, and the EU non-ETS burden sharing agreement," Working Papers 40635, Institut National de la Recherche Agronomique, France.
  3. Margarita Robaina Alves & Miguel Rodríguez & Catarina Roseta-Palma, 2010. "Sectoral and regional impacts of the European Carbon Market in Portugal," GEE Papers 0021, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised Jul 2010.
  4. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's Greenhouse Gas Emissions," Research Series, Economic and Social Research Institute (ESRI), number RS9.
  5. Chiodi, Alessandro & Gargiulo, Maurizio & Deane, J.P. & Lavigne, Denis & Rout, Ullash K. & Ó Gallachóir, Brian P., 2013. "Modelling the impacts of challenging 2020 non-ETS GHG emissions reduction targets on Ireland′s energy system," Energy Policy, Elsevier, vol. 62(C), pages 1438-1452.
  6. Conor Devitt & Richard Tol, 2012. "Oligopoly and Oligopsony Power in the Swedish Market," Working Paper Series 3212, Department of Economics, University of Sussex.
  7. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's GHG Emissions [Instrument choice: the pros and cons of alternative policy instruments]," Papers WP284, Economic and Social Research Institute (ESRI).

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