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Intra- and extra-union flexibility in meeting the European Union's emission reduction targets

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  • Tol, Richard S.J.

Abstract

The EU has proposed four flexibility mechanisms for the regulation of greenhouse gas emissions in the period 2013-2020: (1) the Emissions Trade Scheme (ETS), a permit market between selected companies; (2) trade in non-ETS allotments between Member States; (3) the Clean Development Mechanism (CDM) to purchase offsets in developing countries; and (4) trade in CDM warrants between Member States. This paper shows that aggregate abatement costs fall as flexibility increases. However, limited flexibility creates rents so that increasing flexibility raises costs in some Member States. Costs are reduced more by the CDM than by non-ETS trade. The CDM warrants market reduces costs by a small amount only; market power is a real issue. However, the warrants market is obsolete in case there is non-ETS trade. The CDM leads to price convergence between the ETS and non-ETS market. There would be one price for carbon in the European Union if the proposed limits on CDM access are relaxed slightly.

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  • 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.
    • Handle: RePEc:eee:enepol:v:37:y:2009:i:11:p:4329-4336
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    2. Curtis, John & Devitt, Niamh & di Cosmo, Valeria & Farrell, Niall & FitzGerald, John & Hyland, Marie & Lynch, Muireann & Lyons, Sean & McCoy, Daire & Malaguzzi Valeri, Laura & Walsh, Darragh, 2014. "Irish Energy Policy: An Analysis of Current Issues," Research Series, Economic and Social Research Institute (ESRI), number rs37 edited by FitzGerald, John & Malaguzzi Valeri, Laura.
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    6. Gorecki, Paul K. & Lyons, Sean & Tol, Richard S.J., 2010. "EU climate change policy 2013-2020: Using the Clean Development Mechanism more effectively in the non-EU-ETS Sector," Energy Policy, Elsevier, vol. 38(11), pages 7466-7475, November.
    7. André Sceia & Juan-Carlos Altamirano-Cabrera & Marc Vielle & Nicolas Weidmann, 2012. "Assessment of Acceptable Swiss post-2012 Climate Policies," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(II), pages 347-380, June.
    8. Capros, Pantelis & Mantzos, Leonidas & Parousos, Leonidas & Tasios, Nikolaos & Klaassen, Ger & Van Ierland, Tom, 2011. "Analysis of the EU policy package on climate change and renewables," Energy Policy, Elsevier, vol. 39(3), pages 1476-1485, March.

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