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An early assessment of national allocation plans for phase 2 of EU emission trading

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  • Rogge, Karoline S.
  • Schleich, Joachim
  • Betz, Regina

Abstract

Based on 18 National Allocation Plans (NAP) for phase 2 (2008-2012) of the EU Emission Trading Scheme (EU ETS), we explore to which extent individual Member States (MS) intend to use the ETS effectively and efficiently to reduce CO2 emissions. Our analyses at the macro level of these NAPs show that on average the ET-budgets in phase 2 are only about 3 % lower than the budgets in phase 1 (2005-2007), historical emissions in 2005 and projected emissions in 2010. While on average, the old MS intend to reduce emissions by about 10 %, compared to projected emissions, the im-plied excess allocation in the new MS is more than 20 %. When compared with a cost-efficient split of the required emission reductions, the ET-budgets in the EU-15 MS are generally too large. Thus, the burden for non-trading sectors (households, tertiary and transport) will be too high. Noteworthy are also the high shares of governments' intended and companies' possible use of Kyoto Mechanisms, which challenge the traditional position held by the EU on supplementarity. In general, our analyses at the micro level of the allocation methods (across countries and phases) suggest that MS tend to stick with the oncepts and methodologies developed in phase 1, unless these actually contradict rulings by the European Commission. Thus the progress made towards more efficient and more harmonized allocation rules is generally small. With some variation, all NAPs include persistent inefficient rules for closures and new installations which distort dynamic innovation incentives and tend to preserve existing production structures. Observed improvements include a (rather small) increase in auctioning and the use of benchmarking for existing and new installations. Also, the NAPs of a few old MS have simplified special provisions for process-related emissions or combined heat and power. In contrast, new MS have often introduced such provisions in phase 2. We conclude that potentials to improve environmental effectiveness and economic efficiency are far from being tapped. Improvements crucially hinge on the outcome of the European Commission's review process. --

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Bibliographic Info

Paper provided by Fraunhofer Institute for Systems and Innovation Research (ISI) in its series Working Papers "Sustainability and Innovation" with number S1/2006.

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Date of creation: 2006
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Handle: RePEc:zbw:fisisi:s12006

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References

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  1. 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, Faculty of Economics, University of Cambridge 0644, Faculty of Economics, University of Cambridge.
  2. Pizer, William & Kruger, Joseph, 2004. "The EU Emissions Trading Directive: Opportunities and Potential Pitfalls," Discussion Papers, Resources For the Future dp-04-24, Resources For the Future.
  3. Sonja Peterson, 2006. "Efficient Abatement in Separated Carbon Markets: A Theoretical and Quantitative Analysis of the EU Emissions Trading Scheme," Kiel Working Papers 1271, Kiel Institute for the World Economy.
  4. Spulber, Daniel F., 1985. "Effluent regulation and long-run optimality," Journal of Environmental Economics and Management, Elsevier, vol. 12(2), pages 103-116, June.
  5. Christoph Bohringer & Tim Hoffmann & Andreas Lange & Andreas Loschel & Ulf Moslener, 2005. "Assessing Emission Regulation in Europe: An Interactive Simulation Approach," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 1-22.
  6. Grubb, M. & Neuhoff, K., 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0645, Faculty of Economics, University of Cambridge.
  7. Bohringer, Christoph & Hoffmann, Tim & Manrique-de-Lara-Penate, Casiano, 2006. "The efficiency costs of separating carbon markets under the EU emissions trading scheme: A quantitative assessment for Germany," Energy Economics, Elsevier, Elsevier, vol. 28(1), pages 44-61, January.
  8. Ehrhart, Karl-Martin & Hoppe, Christian & Schleich, Joachim & Seifert, Stefan, 2004. "The role of auctions and forward markets in the EU," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 04-59, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  9. Patrick Graichen & Till Requate, 2005. "Der steinige Weg von der Theorie in die Praxis des Emissionshandels: Die EU-Richtlinie zum CO_2-Emissionshandel und ihre nationale Umsetzung," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 6(1), pages 41-56, 02.
  10. Sijm, J. & Neuhoff, K. & Chen, Y., 2006. "CO2 cost pass through and windfall profits in the power sector," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0639, Faculty of Economics, University of Cambridge.
  11. Schleich, Joachim & Cremer, Clemens, 2007. "Using benchmarking for the primary allocation of EU allowances - an application to the German power sector," Working Papers "Sustainability and Innovation" S6/2007, Fraunhofer Institute for Systems and Innovation Research (ISI).
  12. Catherine Boemare & Philippe Quirion, 2002. "Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences," Post-Print, HAL halshs-00007264, HAL.
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Citations

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Cited by:
  1. Jon Skjærseth & Jørgen Wettestad, 2008. "Implementing EU emissions trading: success or failure?," International Environmental Agreements: Politics, Law and Economics, Springer, Springer, vol. 8(3), pages 275-290, September.
  2. Schleich, Joachim & Rogge, Karoline S. & Betz, Regina, 2008. "Incentives for energy efficiency in the EU Emissions Trading Scheme," Working Papers "Sustainability and Innovation" S2/2008, Fraunhofer Institute for Systems and Innovation Research (ISI).
  3. Eyckmans, Johan & Rousseau, Sandra, 2009. "The European Emissions Trading System in Belgium," Working Papers, Hogeschool-Universiteit Brussel, Faculteit Economie en Management 2009/26, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  4. Kruger, Joseph & Oates, Wallace E. & Pizer, William A., 2007. "Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy," Discussion Papers, Resources For the Future dp-07-02, Resources For the Future.
  5. Schleich, Joachim & Betz, Regina & Rogge, Karoline S., 2007. "EU emission trading: better job second time around?," Working Papers "Sustainability and Innovation" S2/2007, Fraunhofer Institute for Systems and Innovation Research (ISI).
  6. Stoschek, Barbara, 2007. "The Political Economy of Environmental Regulations and Industry Compensation," Economics Working Papers 2007,13, Christian-Albrechts-University of Kiel, Department of Economics.
  7. Séverine BLAISE, 2011. "L'après Kyoto : quelle approche face au changement climatique ?," Mondes en développement, De Boeck Université, De Boeck Université, vol. 0(2), pages 103-120.

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