IDEAS home Printed from https://ideas.repec.org/p/cam/camdae/2152.html
   My bibliography  Save this paper

Should the EU ETS be extended to road transport and heating fuels?

Author

Listed:
  • Pollitt, M. G.
  • Dolphin, G. G.

Abstract

This paper considers the current proposal to extend the EU ETS to cover CO2 emissions from the combustion of heating and road transport fuels. We argue that increased coverage of the EU ETS, together with a binding cap consistent with a net zero trajectory, would be a powerful dynamic incentive to efficient emissions reduction. In addition, it would complement standards-based policies currently enacted in these sectors in several ways. Distributional implications remain a serious challenge to such an extension but several mechanisms are available to alleviate them.

Suggested Citation

  • Pollitt, M. G. & Dolphin, G. G., 2024. "Should the EU ETS be extended to road transport and heating fuels?," Cambridge Working Papers in Economics 2152, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2152
    Note: mgp20
    as

    Download full text from publisher

    File URL: https://www.econ.cam.ac.uk/sites/default/files/publication-cwpe-pdfs/cwpe2152.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christopher R. Knittel & Shinsuke Tanaka, 2019. "Driving Behavior and the Price of Gasoline: Evidence from Fueling-Level Micro Data," NBER Working Papers 26488, National Bureau of Economic Research, Inc.
    2. Richard Schmalensee & Robert N. Stavins, 2017. "Lessons Learned from Three Decades of Experience with Cap and Trade," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 59-79.
    3. Labandeira, Xavier & Labeaga, José M. & López-Otero, Xiral, 2017. "A meta-analysis on the price elasticity of energy demand," Energy Policy, Elsevier, vol. 102(C), pages 549-568.
    4. Jon Birger Skjærseth & Jørgen Wettestad, 2009. "The Origin, Evolution and Consequences of the EU Emissions Trading System," Global Environmental Politics, MIT Press, vol. 9(2), pages 101-122, May.
    5. Douenne, Thomas & Fabre, Adrien, 2020. "French attitudes on climate change, carbon taxation and other climate policies," Ecological Economics, Elsevier, vol. 169(C).
    6. Christopher R. Knittel & Ryan Sandler, 2018. "The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation," American Economic Journal: Economic Policy, American Economic Association, vol. 10(4), pages 211-242, November.
    7. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    8. Meghan R. Busse & Christopher R. Knittel & Florian Zettelmeyer, 2013. "Are Consumers Myopic? Evidence from New and Used Car Purchases," American Economic Review, American Economic Association, vol. 103(1), pages 220-256, February.
    9. Severin Borenstein & James Bushnell & Frank A. Wolak & Matthew Zaragoza-Watkins, 2019. "Expecting the Unexpected: Emissions Uncertainty and Environmental Market Design," American Economic Review, American Economic Association, vol. 109(11), pages 3953-3977, November.
    10. 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..
    11. Shanjun Li & Joshua Linn & Erich Muehlegger, 2014. "Gasoline Taxes and Consumer Behavior," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 302-342, November.
    12. Newbery, David, 2018. "Evaluating the case for supporting renewable electricity," Energy Policy, Elsevier, vol. 120(C), pages 684-696.
    13. James Berkovec, 1985. "New Car Sales and Used Car Stocks: A Model of the Automobile Market," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 195-214, Summer.
    14. Johanna Bocklet & Martin Hintermayer & Lukas Schmidt & Theresa Wildgrube, 2019. "The Reformed EU ETS - Intertemporal Emission Trading with Restricted Banking," EWI Working Papers 2019-4, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    15. Roger Fouquet, 2014. "Editor's Choice Long-Run Demand for Energy Services: Income and Price Elasticities over Two Hundred Years," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(2), pages 186-207.
    16. Meyler, Aidan, 2009. "The pass through of oil prices into euro area consumer liquid fuel prices in an environment of high and volatile oil prices," Energy Economics, Elsevier, vol. 31(6), pages 867-881, November.
    17. Julius J. Andersson, 2019. "Carbon Taxes and CO2 Emissions: Sweden as a Case Study," American Economic Journal: Economic Policy, American Economic Association, vol. 11(4), pages 1-30, November.
    18. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chunyan Dai & Michael G Pollitt, 2024. "From local carbon emissions pilots to the national carbon emissions trading scheme in China," Working Papers EPRG2417, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.

    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. Ohlendorf, Nils & Flachsland, Christian & Nemet, Gregory F. & Steckel, Jan Christoph, 2022. "Carbon price floors and low-carbon investment: A survey of German firms," Energy Policy, Elsevier, vol. 169(C).
    2. Quemin, Simon & Trotignon, Raphaël, 2021. "Emissions trading with rolling horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    3. Cleary, Kathryne & Palmer, Karen & Burtraw, Dallas, 2022. "Lessons from the Literature for State Carbon Pricing Policy Design," RFF Reports 22-01, Resources for the Future.
    4. Feindt, Simon & Kornek, Ulrike & Labeaga, José M. & Sterner, Thomas & Ward, Hauke, 2021. "Understanding regressivity: Challenges and opportunities of European carbon pricing," Energy Economics, Elsevier, vol. 103(C).
    5. Baudry, Marc & Faure, Anouk & Quemin, Simon, 2021. "Emissions trading with transaction costs," Journal of Environmental Economics and Management, Elsevier, vol. 108(C).
    6. Xue Lei & Jian Xu & Ziyan Zhang, 2025. "Can the Energy Rights Trading System Become the New Engine for Corporate Carbon Reduction? Evidence from China’s Heavy-Polluting Industries," Sustainability, MDPI, vol. 17(18), pages 1-19, September.
    7. Donna, Javier D., 2018. "Measuring Long-Run Price Elasticities in Urban Travel Demand," MPRA Paper 90059, University Library of Munich, Germany.
    8. Spyros Arvanitis & Michael Peneder & Christian Rammer & Tobias Stucki & Martin Wörter, 2016. "Competitiveness and ecological impacts of green energy technologies: firm-level evidence for the DACH region," KOF Working papers 16-420, KOF Swiss Economic Institute, ETH Zurich.
    9. Bjertnæs, Geir H.M., 2025. "Economical driving and taxation of road use," Energy Economics, Elsevier, vol. 142(C).
    10. Yongyang Cai & Khyati Malik & Hyeseon Shin, 2023. "Dynamics of Global Emission Permit Prices and Regional Social Cost of Carbon under Noncooperation," Papers 2312.15563, arXiv.org, revised Jan 2025.
    11. Ott, Laurent & Weber, Sylvain, 2022. "How effective is carbon taxation on residential heating demand? A household-level analysis," Energy Policy, Elsevier, vol. 160(C).
    12. Jessica Coria & Gunnar Köhlin & Jintao Xu, 2019. "On the Use of Market-Based Instruments to Reduce Air Pollution in Asia," Sustainability, MDPI, vol. 11(18), pages 1-23, September.
    13. Benjamin Krebs & Simon Luechinger, 2020. "The effect of an electricity tax on aggregate electricity consumption: evidence from Basel," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 156(1), pages 1-20, December.
    14. Richard Schmalensee & Robert N. Stavins, 2019. "Policy Evolution under the Clean Air Act," Journal of Economic Perspectives, American Economic Association, vol. 33(4), pages 27-50, Fall.
    15. Jindal, Abhinav & Puri, Shivam & Shrimali, Gireesh, 2025. "Designing a prospective carbon trading market in India: Key properties, enabling features and linkages," Applied Energy, Elsevier, vol. 386(C).
    16. Moritz A. Drupp & Ulrike Kornek & Jasper N. Meya & Lutz Sager, 2021. "Inequality and the Environment: The Economics of a Two-Headed Hydra," CESifo Working Paper Series 9447, CESifo.
    17. Mideksa, Torben K., 2024. "Pricing for a cooler planet: An empirical analysis of the effect of taxing carbon," Journal of Environmental Economics and Management, Elsevier, vol. 127(C).
    18. Javier D. Donna, 2021. "Measuring long‐run gasoline price elasticities in urban travel demand," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 945-994, December.
    19. Anderson, Heather M. & Gao, Jiti & Turnip, Guido & Vahid, Farshid & Wei, Wei, 2023. "Estimating the effect of an EU-ETS type scheme in Australia using a synthetic treatment approach," Energy Economics, Elsevier, vol. 125(C).
    20. Rohan Best & Paul J. Burke & Frank Jotzo, 2020. "Carbon Pricing Efficacy: Cross-Country Evidence," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(1), pages 69-94, September.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:cam:camdae:2152. 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: Jake Dyer (email available below). General contact details of provider: https://www.econ.cam.ac.uk/ .

    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.