Emission Trading System

The implementation of an emission trading system is very complicated and requires technical steps, including treatment of sinks, monitoring, and enforcement. On the other hand, taxation is a very well-known instrument by policy makers, not very costly because it does not require monitoring and enforcement organization. 

Svendsen GT. How to Include Farmers in the Emission Trading System. ICROFS News. 2011 1 10-11... 

Published as The European Emissions Trading System Implications for Industrial Competitiveness, 2004 [available from http //www.carbontrust.co.uk/Publications]. 

Allocation and competitiveness in the EU emissions trading system policy overview 9... 

This policy overview is in two parts. Part A draws directly on these component studies to clarify and emphasize five ways in which the EU ETS differs from previous emissions trading systems ... 

The aim of emissions cap-and-trade is to secure emission reductions at the lowest possible overall cost the trading allows companies to seek emission reductions to meet the aggregate cap wherever and however it is cheapest to do so. Five principles underlie the practical economic impact of an emissions trading system applied to C02 ... 

Grubb, M., Azar, C., Persson, U.M., 2005. Allowance allocation in the European emissions trading system a commentary. Climate Policy 5(1), 127-136. 

Ahman, M., Burtraw, D., Kruger, J.A., Zetterberg, L., 2005. The Ten-year Rule Allocation of Emission Allowances in the EU Emissions Trading System. RFF Discussion Paper 05-30. 

Schleich, J., Betz, R., 2005. Incentives for energy efficiency and innovation in the European Emission Trading System. In Proceedings of the ECEEE Summer Study, Mandelieu, 2005 [available at http //www.eceee.org/library links/proceedings/ 2005/abstract/7124schleich.lasso]. 

Since the beginning of 2003, extensive research and consultancy operations have been brought into being. These projects are devoted to the development of the NAP for Germany (DIW et al. 2005), the implementation of the emissions trading system in German law as well as data collection and evaluation for the plants and companies covered by emissions trading. 

In the AGE, intensive stakeholder consultations took place. These addressed the different possible designs of the emissions trading system and their prospective or conjectured effects on the individual plant operators and branches of trade. 

Last but not least, a new institution was created, the German Emissions Trading Authority at the German Federal Environmental Agency (Deutsche Emissionshandelsstelle im Umweltbundesamt - DEHSt), for the implementation of the emissions trading system. This institution has more than 100 employees at present. 

The analyses and discussions about the emission target took place on the basis of national greenhouse gas inventories and corresponding projections. The fact that a share of industry would not be included in the emissions trading system on the one hand, and that a number of plants from other sectors (commerce/trade/services) would fall under the scope of the EU ETS on the other hand, was not taken into account at first. 

The reality of a multi-period emissions trading scheme with free allocation for new installations in connection with the (mainly policy-driven) attempt to avoid shut-down premiums for plant closure demonstrates that the allocation rules could have a considerable influence upon the efficiency of the emission trading system. As a result of differentiated new plant allocations, as well as a series of ex-post adjustments, an erosion in the CO2 price signal for operational or investment decisions by the economic entities within the scope of the EU ETS could arise. The development of the allocation provisions for new entrants is one of the key decisions for future NAPs. 

Oko-Institut, DIW (Deutsches Institut fur Wirtschaftsforschung), and Ecofys 2003. Impact of the European emissions trading system on German industry , Final Report for WWF. Berlin, Cologne, September 2003. 

Lauge Pedersen, S. 2000. The Danish CO2 emissions trading system , Review of European Community and International Environmental Law 9(3) 223-31. 

In Sweden, there has been a lot of attention on the allocation process rather than on the effects of the emission trading system itself. Some companies argue that if C02-efficient companies are not rewarded in the allocation there will be no incentives for abatement. I do not agree with them. It is true that allocation can be a very important revenue. For new entrants, the value of the allocation can be comparable to the annual cost for the investment (Ahman and Holmgren 2006). But the incentives for abatement are created from the cost for carbon emissions and not from the individual allocation. One can ask whether this is what companies really believe or whether they were just making noise in order to increase their allocation. 

The effectiveness of an emission trading system is mainly based on four factors (1) long-term emission targets, (2) clear and stable rules, (3) efficient enforcement of rules and (4) availability of emission reduction technologies. The fulfilment of the above conditions contributes to increase investment in emission reduction. 

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