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Cross-country comparison of the replacement incentives of the EU ETS in 2008-12: the case of the power sector

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  • Rogge, Karoline S.
  • Linden, Christian
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    Abstract

    In this paper, we conduct a cross-country quantitative analysis of the replacement incentives generated by the EU ETS for the power sector in 2008-12. In order to do so, the allocation rules of the Member States are applied to concrete reference power plants for three different fuel types (lignite, hard coal and gas). Based on these calculations, we compare installation-specific replacement in-centives across the Member States. Our analysis shows that replacement incentives vary significantly across Member States and typically deviate from the incentives provided in the reference case of full auctioning. Furthermore, the EU ETS allocation rules lead to perverse incentives in approximately 30% of the possible replacement options. Only 5 MS do not provide any perverse incentives. Finally, we explore the link between replacement incentives and allocation types. Based on our findings, we derive policy recommendations for the design of emission trading schemes emerging around the world. --

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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 S1/2010.

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    Date of creation: 2010
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    Handle: RePEc:zbw:fisisi:s12010

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    Keywords: EU emission trading scheme (EU ETS); replacement; adoption; diffusion; power sector; allocation rules;

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    1. 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).
    2. 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.
    3. A. Denny Ellerman, 2008. "New Entrant and Closure Provisions: How do they Distort?," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Special I), pages 63-76.
    4. Muller, Adrian & Sterner, Thomas, 2009. "Output and Abatement Effects of Allocation Readjustment in Permit Trade," Working Papers in Economics, University of Gothenburg, Department of Economics 413, University of Gothenburg, Department of Economics.
    5. 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).
    6. Cramton, Peter & Kerr, Suzi, 2002. "Tradeable carbon permit auctions: How and why to auction not grandfather," Energy Policy, Elsevier, Elsevier, vol. 30(4), pages 333-345, March.
    7. Gagelmann, Frank, 2006. "Innovation effects of tradable emission allowance schemes: the treatment of new entrants and shutdowns," UFZ Discussion Papers 4/2006, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    8. Spulber, Daniel F., 1985. "Effluent regulation and long-run optimality," Journal of Environmental Economics and Management, Elsevier, vol. 12(2), pages 103-116, June.
    9. Neuhoff, K. & Keats, K. & Sato, M., 2006. "Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0642, Faculty of Economics, University of Cambridge.
    10. Ahman, Markus & Burtraw, Dallas & Kruger, Joseph & Zetterberg, Lars, 2007. "A Ten-Year Rule to guide the allocation of EU emission allowances," Energy Policy, Elsevier, Elsevier, vol. 35(3), pages 1718-1730, March.
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