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The European Union Emissions Trading Scheme: Issues in Allowance Price Support and Linkage

Author

Listed:
  • Frank J. Convery

    (Earth Institute, University College Dublin, Dublin 4, Ireland)

  • Luke Redmond

    (Earth Institute, University College Dublin, Dublin 4, Ireland)

Abstract

In 2008, the European Union established what seemed like an ambitious cap (−21% from 2005 levels) for the third phase (2013–2020) of the European Union Emissions Trading Scheme (EU ETS). Ex ante modeling—which took account of the reductions in emissions resulting from meeting the renewables target and the inflow of project-based credits—indicated that this would result in an approximate allowance price of €30 per tonne of CO2, which was judged to provide the necessary financial incentive to abate emissions, to support carbon capture and storage and innovation in alternative energy supplies, and to discourage member states from doing their own thing in terms of price support and other measures. The only linkage was the acceptance for compliance purposes of Clean Development Mechanism and Joint Implementation credits. But in 2013, all has changed; the allowance price is approximately 75% less than what was anticipated, a friends-of-coal lobby has emerged in the EU, and opportunities to link with other ETS are now becoming a reality. This article tells the story of the allowance price collapse, emerging opportunities for linkage—including promising developments in China—and what recent literature has to offer in both understanding the past and informing the future.

Suggested Citation

  • Frank J. Convery & Luke Redmond, 2013. "The European Union Emissions Trading Scheme: Issues in Allowance Price Support and Linkage," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 301-324, June.
  • Handle: RePEc:anr:reseco:v:5:y:2013:p:301-324
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-resource-091912-151827
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    Citations

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    Cited by:

    1. Raymond, Leigh, 2019. "Policy perspective:Building political support for carbon pricing—Lessons from cap-and-trade policies," Energy Policy, Elsevier, vol. 134(C).
    2. Andreas A. Papandreou, 2015. "The Great Recession and the transition to a low-carbon economy," Working papers wpaper88, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Yilun Luo & Esmaeil Ahmadi & Benjamin C. McLellan & Tetsuo Tezuka, 2022. "Will Capacity Mechanisms Conflict with Carbon Pricing?," Energies, MDPI, vol. 15(24), pages 1-25, December.
    4. Lucia, Julio J. & Mansanet-Bataller, Maria & Pardo, Ángel, 2015. "Speculative and hedging activities in the European carbon market," Energy Policy, Elsevier, vol. 82(C), pages 342-351.
    5. Hong Tian & Jiaen Lin & Chunyuan Jiang, 2022. "The Impact of Carbon Emission Trading Policies on Enterprises’ Green Technology Innovation—Evidence from Listed Companies in China," Sustainability, MDPI, vol. 14(12), pages 1-16, June.
    6. N. Keohane & A. Petsonk & A. Hanafi, 2017. "Toward a club of carbon markets," Climatic Change, Springer, vol. 144(1), pages 81-95, September.
    7. Aleksander Jakimowicz, 2022. "The Energy Transition as a Super Wicked Problem: The Energy Sector in the Era of Prosumer Capitalism," Energies, MDPI, vol. 15(23), pages 1-31, December.

    More about this item

    Keywords

    EU ETS; global climate change; market-based instruments; cap and trade; carbon pricing; carbon taxes; linkage; international climate policy architecture;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • 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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