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Intra-union flexibility of non-ETS emission reduction obligations in the European Union

  • Tol, Richard S.J.

The EU proposal on greenhouse gas emission reduction has 28 targets for 2020: an EU-wide one for CO2 emissions covered by the European Trading System (ETS), and one target for non-ETS emissions per Member State. Implementation is 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 alternatives to the default policy (no flexibility outside the ETS) and the cost-effective solution (full flexibility). I calibrate a simple model to the results of the EU impact assessment, which did not disclose all details and made odd assumptions. The non-ETS allocation exceeds the projected emissions for three Member States. The alternative flexibility mechanisms would be used to only a limited extent, but would cut the costs of meeting the target. The Swedish and Polish proposals come closest to the cost-effective solution because of the hot air. The Irish proposal performs best if there are negative surprises in either abatement costs or emissions. The Swedish proposal will become policy.

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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 37 (2009)
Issue (Month): 5 (May)
Pages: 1745-1752

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Handle: RePEc:eee:enepol:v:37:y:2009:i:5:p:1745-1752
Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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