IDEAS home Printed from https://ideas.repec.org/p/ags/rffdps/10679.html

The EU Emissions Trading Directive: Opportunities and Potential Pitfalls

Author

Listed:
  • Kruger, Joseph
  • Pizer, William A.

Abstract

The European Union is on the verge of establishing an emissions trading program ten times the size of the Acid Rain trading program in the United States. Its design takes advantage of many lessons from existing experience with trading programs, as well as economic theory, and innovates in important ways. While we view this as an impressive development, concerns about equity, enforcement, and efficiency remain. Specifically, a lack of data and weaker environmental institutions in some EU Member States raises questions about both allowance allocations and compliance and enforcement. Although much attention has focused on whether prices will be "too low" in the first phase of the program, a greater risk is that uncertainty about program elements, technology and behavioral response, and external events could create volatile markets and costly compliance in the second phase. Regardless of outcome, the EU trading system will be influential in future international efforts to reduce greenhouse gases.

Suggested Citation

  • Kruger, Joseph & Pizer, William A., 2004. "The EU Emissions Trading Directive: Opportunities and Potential Pitfalls," Discussion Papers 10679, Resources for the Future.
    • Handle: RePEc:ags:rffdps:10679
    DOI: 10.22004/ag.econ.10679
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/10679/files/dp040024.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.10679?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Burtraw, Dallas & Evans, David A., 2003. "The Evolution of NOx Control Policy for Coal-Fired Power Plants in the United States," Discussion Papers 10645, Resources for the Future.
    2. Franck Lecocq & Karan Capoor, "undated". "State and Trends of the Carbon Market 2003," World Bank Publications - Reports 13416, The World Bank Group.
    3. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, January.
      • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839, January.
    4. Joskow, Paul L & Schmalensee, Richard, 1998. "The Political Economy of Market-Based Environmental Policy: The U.S. Acid Rain Program," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 37-83, April.
    5. Tom Tietenberg, 2003. "The Tradable-Permits Approach to Protecting the Commons: Lessons for Climate Change," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(3), pages 400-419.
    6. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers 10709, Resources for the Future.
    7. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
    8. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2001. "The Effect of Allowance Allocation on the Cost of Carbon Emission Trading," RFF Working Paper Series dp-01-30-, Resources for the Future.
    9. 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.
    10. Burtraw, Dallas & Palmer, Karen, 2003. "The Paparazzi Take a Look at a Living Legend: The SO2 Cap-and-Trade Program for Power Plants in the United States," RFF Working Paper Series dp-03-15, Resources for the Future.
    11. J. David T�bara, 2003. "Spain: words that succeed and climate policies that fail," Climate Policy, Taylor & Francis Journals, vol. 3(1), pages 19-30, March.
    12. Blackman, Allen & Harrington, Winston, 1999. "The Use of Economic Incentives in Developing Countries: Lessons from International Experience with Industrial Air Pollution," Discussion Papers 10601, Resources for the Future.
    13. Jacoby, Henry D. & Ellerman, A. Denny, 2004. "The safety valve and climate policy," Energy Policy, Elsevier, vol. 32(4), pages 481-491, March.
    14. Bernard, Alain & Paltsev, Sergey & Reilly, John L. & Vielle, Marc & Viguier, Laurent, 2003. "Russia's Role in the Kyoto Protocol," IDEI Working Papers 237, Institut d'Économie Industrielle (IDEI), Toulouse.
    15. Cramton, Peter & Kerr, Suzi, 2002. "Tradeable carbon permit auctions: How and why to auction not grandfather," Energy Policy, Elsevier, vol. 30(4), pages 333-345, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kruger, Joseph, 2005. "From SO2 to Greenhouse Gases: Trends and Events Shaping Future Emissions Trading Programs in the United States," Discussion Papers 10819, Resources for the Future.
    2. Kruger, Joseph, 2005. "From SO2 to Greenhouse Gases: Trends and Events Shaping Future Emissions Trading Programs in the United States," RFF Working Paper Series dp-05-20, Resources for the Future.
    3. Stavins, Robert, 2004. "Can an Effective Global Climate Treaty be Based on Sound Science, Rational Economics, and Pragmatic Politics?," Working Paper Series rwp04-020, Harvard University, John F. Kennedy School of Government.
    4. Robert W. Hahn & Robert N. Stavins, 2011. "The Effect of Allowance Allocations on Cap-and-Trade System Performance," Journal of Law and Economics, University of Chicago Press, vol. 54(S4), pages 267-294.
    5. Ian A. MacKenzie, 2017. "Rent creation and rent seeking in environmental policy," Public Choice, Springer, vol. 171(1), pages 145-166, April.
    6. Sebastian Goers & Alexander Wagner & Jürgen Wegmayr, 2010. "New and old market-based instruments for climate change policy," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 12(1), pages 1-30, June.
    7. Joseph E. Aldy & Alan J. Krupnick & Richard G. Newell & Ian W. H. Parry & William A. Pizer, 2010. "Designing Climate Mitigation Policy," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 903-934, December.
    8. Sam Fankhauser & Cameron Hepburn, 2009. "Carbon markets in space and time," GRI Working Papers 3, Grantham Research Institute on Climate Change and the Environment.
    9. Halvor Briseid Storrøsten, 2012. "Prices vs. quantities: Technology choice, uncertainty and welfare," Discussion Papers 677, Statistics Norway, Research Department.
    10. Pizer, William, 2005. "Climate Policy Design Under Uncertainty," RFF Working Paper Series dp-05-44, Resources for the Future.
    11. Liu, Beibei & He, Pan & Zhang, Bing & Bi, Jun, 2012. "Impacts of alternative allowance allocation methods under a cap-and-trade program in power sector," Energy Policy, Elsevier, vol. 47(C), pages 405-415.
    12. Richard Schmalensee & Robert N. Stavins, 2025. "Lessons Learned from Three Decades of Experience with Cap and Trade," World Scientific Book Chapters, in: Economics of Environment, Climate Change, and Wine Selected Papers of Robert N Stavins Volume 3 (2011–2023), chapter 9, pages 235-264, World Scientific Publishing Co. Pte. Ltd..
    13. Zhang, Cheng & Wang, Qunwei & Shi, Dan & Li, Pengfei & Cai, Wanhuan, 2016. "Scenario-based potential effects of carbon trading in China: An integrated approach," Applied Energy, Elsevier, vol. 182(C), pages 177-190.
    14. Bode, Sven, 2006. "Multi-period emissions trading in the electricity sector--winners and losers," Energy Policy, Elsevier, vol. 34(6), pages 680-691, April.
    15. Adrian Amelung, 2016. "Das "Paris-Agreement": Durchbruch der Top-Down-Klimaschutzverhandlungen im Kreise der Vereinten Nationen," Otto-Wolff-Institut Discussion Paper Series 03/2016, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
    16. Spencer Banzhaf, H. & Burtraw, Dallas & Palmer, Karen, 2004. "Efficient emission fees in the US electricity sector," Resource and Energy Economics, Elsevier, vol. 26(3), pages 317-341, September.
    17. Samuel Fankhauser & Cameron Hepburn & Jisung Park, 2010. "Combining Multiple Climate Policy Instruments: How Not To Do It," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 1(03), pages 209-225.
    18. Aldy, Joseph E. & Ley, Eduardo & Parry, Ian, 2008. "A Tax–Based Approach to Slowing Global Climate Change," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(3), pages 493-517, September.
    19. Christoph Weber & Philip Vogel, 2014. "Contingent certificate allocation rules and incentives for power plant investment and disinvestment," Journal of Regulatory Economics, Springer, vol. 46(3), pages 292-317, December.
    20. William A. Pizer, 2005. "The case for intensity targets," Climate Policy, Taylor & Francis Journals, vol. 5(4), pages 455-462, July.

    More about this item

    Keywords

    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:rffdps:10679. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/rffffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.