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Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy

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Author Info
Kruger, Joseph
Oates, Wallace E.
Pizer, William A. () (Resources for the Future)

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Abstract

In 2005, the European Union introduced the largest and most ambitious emissions trading program in the world to meet its Kyoto commitments for the containment of global climate change. The EU Emissions Trading Scheme (EU ETS) has some distinctive features that differentiate it from the more standard model of emissions trading. In particular, it has a relatively decentralized structure that gives individual member states responsibility for setting targets, allocating permits, determining verification and enforcement, and making some choices about flexibility. It is also a “cap-within-a-cap,” seeking to achieve the Kyoto targets while only covering about half of EU emissions. Finally, it is a program that many hope will link with other greenhouse gas trading programs in the future—something we have not seen among existing trading systems. Examining these features coupled with recent EU ETS experience offers lessons about how cost effectiveness, equity, flexibility, and compliance fare in a multi-jurisdictional trading program, and highlights the challenges facing a global emissions trading regime.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-07-02.

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Date of creation: 05 Feb 2007
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Handle: RePEc:rff:dpaper:dp-07-02

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Related research
Keywords: emissions trading; Kyoto Protocol; European Union; linking; climate change;

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Find related papers by JEL classification:
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
F53 - International Economics - - International Relations and International Political Economy - - - International Agreements and Observance; International Organizations

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Böhringer, Christoph & Lange, Andreas, 2004. "Mission Impossible !? : On the Harmonization of National Allocation Plans under the EU Emissions Trading Directive," ZEW Discussion Papers 04-15, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
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  2. Stavins, Robert, 2001. "Experience with Market-Based Environmental Policy Instruments," Discussion Papers dp-01-58, Resources For the Future. [Downloadable!]
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  3. Frankel, Jeffrey, 2007. "Formulas for Quantitative Emission Targets," Working Paper Series rwp07-011, Harvard University, John F. Kennedy School of Government. [Downloadable!]
  4. Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Discussion Papers dp-97-18-rev, Resources For the Future. [Downloadable!]
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  5. Ahman, Markus & Burtraw, Dallas & Kruger, Joseph & Zetterberg, Lars, 2007. "A Ten-Year Rule to guide the allocation of EU emission allowances," Energy Policy, Elsevier, vol. 35(3), pages 1718-1730, March. [Downloadable!] (restricted)
  6. Fischer, Carolyn, 2003. "Combining Rate-Based and Cap-and-Trade Emissions Policies," Discussion Papers dp-03-32, Resources For the Future. [Downloadable!]
  7. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March. [Downloadable!] (restricted)
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  8. Parry, Ian W. H. & Williams III, Roberton C., 1999. "A second-best evaluation of eight policy instruments to reduce carbon emissions," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 347-373, August. [Downloadable!] (restricted)
  9. Stavins, Robert, 2005. "Vintage-Differentiated Environmental Regulation," Discussion Papers dp-05-59, Resources For the Future. [Downloadable!]
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  10. Warwick J. McKibbin & Martin T. Ross & Robert Shackleton & Peter J. Wilcoxen, 1999. "Emissions Trading, Capital Flows and the Kyoto Protocol," Economics and Environment Network Working Papers 9901, Australian National University, Economics and Environment Network. [Downloadable!]
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  11. Grubb, M. & Neuhoff, K., 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Cambridge Working Papers in Economics 0645, Faculty of Economics, University of Cambridge. [Downloadable!]
  12. Fischer, Carolyn & Newell, Richard, 2004. "Environmental and Technology Policies for Climate Mitigation," Discussion Papers dp-04-05, Resources For the Future. [Downloadable!]
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  13. repec:cup:cbooks:9780521023894 is not listed on IDEAS
  14. Hepburn, C. & Grubb, M. & Neuhoff, K. & Matthes , F. & Tse, M., 2006. "Auctioning of EU ETS Phase II allowances: how and why?," Cambridge Working Papers in Economics 0644, Faculty of Economics, University of Cambridge. [Downloadable!]
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  1. N. Anger & B. Brouns & J. Onigkeit, 2009. "Linking the EU emissions trading scheme: economic implications of allowance allocation and global carbon constraints," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 14(5), pages 379-398, June. [Downloadable!] (restricted)
  2. Judson Jaffe & Robert N. Stavins, 2008. "Linkage of Tradable Permit Systems in International Climate Policy Architecture," NBER Working Papers 14432, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Tol, Richard S. J., 2008. "Intra-Union Flexibility of Non-ETS Emission Reduction Obligations in the European Union," Papers WP256, Economic and Social Research Institute (ESRI). [Downloadable!]
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  4. Christoph Böhringer and Knut Einar Rosendahl, 2008. "Strategic Partitioning of Emissions Allowances. Under the EU Emission Trading Scheme," Discussion Papers 538, Research Department of Statistics Norway. [Downloadable!]
  5. David Malueg & Andrew Yates, 2009. "Strategic Behavior, Private Information, and Decentralization in the European Union Emissions Trading System," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(3), pages 413-432, July. [Downloadable!] (restricted)
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