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Intra-Union Flexibility of Non-ETS Emission Reduction Obligations in the European Union

Author

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  • Tol, Richard S. J.

    (Economic and Social Research Institute (ESRI))

Abstract

The current EU proposal on greenhouse gas emission reduction has 28 targets for 2020: an EU-wide one for carbon dioxide emissions covered by the European Trading System, and one target for non-ETS emission per Member State. Implementation is necessarily 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 three alternatives to the default policy (no flexibility outside the ETS) and to the cost-effective solution (full flexibility). I calibrate a simple model to the results of the impact assessment of the European Commission. This reveals that European Commission did not fully disclose all details, and that odd assumptions were made. In the case of three Member States, the non-ETS allocation exceeds the projected emissions. The results show that the alternative flexibility mechanisms would be used to only a limited extent, but would help to suppress the costs of meeting the target. The Swedish and Polish proposals come closest to the cost-effective solution as full use is made of the hot air in the non-ETS system. The Irish proposal performs best if there are negative surprises in either the cost of non-ETS emission reduction or non-ETS emission projections.

Suggested Citation

  • Tol, Richard S. J., 2008. "Intra-Union Flexibility of Non-ETS Emission Reduction Obligations in the European Union," Papers WP256, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esr:wpaper:wp256
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    References listed on IDEAS

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    Cited by:

    1. Tol, Richard S.J., 2009. "Intra- and extra-union flexibility in meeting the European Union's emission reduction targets," Energy Policy, Elsevier, vol. 37(11), pages 4329-4336, November.
    2. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's Greenhouse Gas Emissions," Research Series, Economic and Social Research Institute (ESRI), number RS9.
    3. Harmsen, Robert & Eichhammer, Wolfgang & Wesselink, Bart, 2011. "Imbalance in Europe's Effort Sharing Decision: Scope for strengthening incentives for energy savings in the non-ETS sectors," Energy Policy, Elsevier, vol. 39(10), pages 6636-6649, October.
    4. De Cara, Stéphane & Jayet, Pierre-Alain, 2011. "Marginal abatement costs of greenhouse gas emissions from European agriculture, cost effectiveness, and the EU non-ETS burden sharing agreement," Ecological Economics, Elsevier, vol. 70(9), pages 1680-1690, July.
    5. Stéphane De Cara & Loïc Henry & Pierre-Alain Jayet, 2018. "Optimal coverage of an emission tax in the presence of monitoring, reporting, and verification costs
      [Couverture optimale d'une taxe sur les émissions en présence de coût de contrôle, de rapportage
      ," Post-Print hal-01736839, HAL.
    6. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's GHG Emissions [Instrument choice: the pros and cons of alternative policy instruments]," Papers WP284, Economic and Social Research Institute (ESRI).
    7. Hermeling, Claudia & Löschel, Andreas & Mennel, Tim, 2013. "A new robustness analysis for climate policy evaluations: A CGE application for the EU 2020 targets," Energy Policy, Elsevier, vol. 55(C), pages 27-35.
    8. Robaina Alves, Margarita & Rodríguez, Miguel & Roseta-Palma, Catarina, 2011. "Sectoral and regional impacts of the European carbon market in Portugal," Energy Policy, Elsevier, vol. 39(5), pages 2528-2541, May.
    9. Ziemele, Jelena & Pakere, Ieva & Blumberga, Dagnija, 2016. "The future competitiveness of the non-Emissions Trading Scheme district heating systems in the Baltic States," Applied Energy, Elsevier, vol. 162(C), pages 1579-1585.
    10. Chiodi, Alessandro & Gargiulo, Maurizio & Deane, J.P. & Lavigne, Denis & Rout, Ullash K. & Ó Gallachóir, Brian P., 2013. "Modelling the impacts of challenging 2020 non-ETS GHG emissions reduction targets on Ireland′s energy system," Energy Policy, Elsevier, vol. 62(C), pages 1438-1452.
    11. Ziemele, Jelena & Gravelsins, Armands & Blumberga, Andra & Vigants, Girts & Blumberga, Dagnija, 2016. "System dynamics model analysis of pathway to 4th generation district heating in Latvia," Energy, Elsevier, vol. 110(C), pages 85-94.
    12. Conor Devitt & Richard Tol, 2012. "Oligopoly and Oligopsony Power in the Swedish Market," Working Paper Series 3212, Department of Economics, University of Sussex.
    13. Tol, Richard S.J., 2012. "A cost–benefit analysis of the EU 20/20/2020 package," Energy Policy, Elsevier, vol. 49(C), pages 288-295.

    More about this item

    Keywords

    Climate change; Emissions trade; European Union;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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