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What Can We Learn from EU ETS?

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  • Vollebergh, Herman

    (Tilburg University, School of Economics and Management)

  • Brink, Corjan

Abstract

This paper discusses lessons that other regions could learn from European Union’s effort to implement carbon pricing through EU Emission Trading System (EU ETS). Our lessons are, first of all, that a cap-and-trade system like EU ETS is very helpful in guaranteeing a credible and binding reduction of emissions through its cap within the sectors subject to this regulation. Second, providing enough flexibility for trade, in particular intertemporal trade, is essential but should also be guided with care. The current quantity rules for the Market Stability Reserve to steer the abundancy of allowances seems a promising new feature for cap-and-trade policies, although price collars for newly designed systems create more transparency. Third, it is far from obvious why EU ETS should cover the entire carbon emissions base if other instruments, like (implicit) carbon taxes are already available. Finally, EU ETS seems at least partially responsible for the observed steady reduction of carbon emission within the EU ETS sectors. However, the gradual tendency to outsource emissions to other regions justifies carbon border adjustment mechanisms for selected sectors if other regions do not impose carbon pricing rules.
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  • Vollebergh, Herman & Brink, Corjan, 2020. "What Can We Learn from EU ETS?," Other publications TiSEM 797919bb-6d56-4268-90b7-d, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:797919bb-6d56-4268-90b7-db5f52ab9b15
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    References listed on IDEAS

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    Cited by:

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    2. Bruno Bosco, 2023. "Trade, equilibrium prices and rents in European auctions for emission allowances," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 25(1), pages 87-113, January.
    3. Bruno Bosco, 2020. "Auctioning C02 Emission Allowances in Europe. A Time Series Analysis of Equilibrium Prices," Working Papers 448, University of Milano-Bicocca, Department of Economics.
    4. Fiala, Nathan & Masselus, Lise, 2022. "Whom to ask? Testing respondent effects in household surveys," Ruhr Economic Papers 935, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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    More about this item

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • 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

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