IDEAS home Printed from https://ideas.repec.org/p/mar/magkse/201835.html
   My bibliography  Save this paper

Decoupling the EU ETS from subsidized renewables and other demand side effects Lessons from the impact of the EU ETS on CO2 emissions in the German electricity sector

Author

Listed:
  • Sebastian Schaefer

    (University of Siegen)

Abstract

This paper analyzes the impact of the EU ETS on CO2 reduction in the German electricity sector. We find an ETS-induced emission abatement which is not exceeding 6 % of total emissions with a maximum already in 2010. Thereafter the ETS has not induced additional reductions. This outcome is sub-optimal. It corresponds to the recent debate about sub-optimal performance of the EU ETS caused by excessive allowances. Following up on this we develop a unilateral flexible cap to eliminate demand side effects which lead to excessive allowances. The unilateral flexible cap is based on emission intensities. Using the works of Newell and Pizer (2008); Sue Wing et al. (2009) we prove in a first step that an intensity-based emission cap is advantageous in the German electricity sector when compared to an absolute cap. An ex-post analysis shows that the amount of excessive allowances resulting from the economic crisis during the second trading period could have been significantly lowered with a unilateral flexible cap. This approach also decouples the EU ETS from a simultaneous promotion of renewable energy.

Suggested Citation

  • Sebastian Schaefer, 2018. "Decoupling the EU ETS from subsidized renewables and other demand side effects Lessons from the impact of the EU ETS on CO2 emissions in the German electricity sector," MAGKS Papers on Economics 201835, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201835
    as

    Download full text from publisher

    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2018/35-2018_schaefer.pdf
    File Function: First 201835
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. de Perthuis, Christian & Trotignon, Raphael, 2014. "Governance of CO2 markets: Lessons from the EU ETS," Energy Policy, Elsevier, vol. 75(C), pages 100-106.
    2. Andreas Schröder & Friedrich Kunz & Jan Meiss & Roman Mendelevitch & Christian von Hirschhausen, 2013. "Current and Prospective Costs of Electricity Generation until 2050," Data Documentation 68, DIW Berlin, German Institute for Economic Research.
    3. Barry Anderson & Corrado Di Maria, 2011. "Abatement and Allocation in the Pilot Phase of the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(1), pages 83-103, January.
    4. repec:dau:papers:123456789/13539 is not listed on IDEAS
    5. Holland, Stephen P., 2012. "Emissions taxes versus intensity standards: Second-best environmental policies with incomplete regulation," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 375-387.
    6. Quirion, Philippe, 2005. "Does uncertainty justify intensity emission caps?," Resource and Energy Economics, Elsevier, vol. 27(4), pages 343-353, November.
    7. Jake Schmidt & Ned Helme & Jin Lee & Mark Houdashelt, 2008. "Sector-based approach to the post-2012 climate change policy architecture," Climate Policy, Taylor & Francis Journals, vol. 8(5), pages 494-515, September.
    8. Frank Convery, 2009. "Origins and Development of the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(3), pages 391-412, July.
    9. repec:dau:papers:123456789/10174 is not listed on IDEAS
    10. Tim Laing & Misato Sato & Michael Grubb & Claudia Comberti, 2013. "Assessing the effectiveness of the EU Emissions Trading System," GRI Working Papers 106, Grantham Research Institute on Climate Change and the Environment.
    11. Rathmann, M., 2007. "Do support systems for RES-E reduce EU-ETS-driven electricity prices?," Energy Policy, Elsevier, vol. 35(1), pages 342-349, January.
    12. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
    13. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
    14. Rogge, Karoline S. & Schneider, Malte & Hoffmann, Volker H., 2011. "The innovation impact of the EU Emission Trading System -- Findings of company case studies in the German power sector," Ecological Economics, Elsevier, vol. 70(3), pages 513-523, January.
    15. Widerberg, Anna & Wråke, Markus, 2009. "The Impact of the EU Emissions Trading System on CO2 Intensity in Electricity Generation," Working Papers in Economics 361, University of Gothenburg, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Changsheng & Qi, Yaping & Liu, Shaohui & Wang, Xu, 2022. "Do carbon ETS pilots improve cities' green total factor productivity? Evidence from a quasi-natural experiment in China," Energy Economics, Elsevier, vol. 108(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schäfer, Sebastian, 2019. "Decoupling the EU ETS from subsidized renewables and other demand side effects: lessons from the impact of the EU ETS on CO2 emissions in the German electricity sector," Energy Policy, Elsevier, vol. 133(C).
    2. Lecuyer, Oskar & Quirion, Philippe, 2013. "Can uncertainty justify overlapping policy instruments to mitigate emissions?," Ecological Economics, Elsevier, vol. 93(C), pages 177-191.
    3. Frédéric Branger & Oskar Lecuyer & Philippe Quirion, 2013. "The European Union Emissions Trading System : should we throw the flagship out with the bathwater ?," Working Papers hal-00866408, HAL.
    4. Xavier Timbeau & Pawel Wiejski, 2017. "EU ETS-broken beyond repair ? An analysis based on FASTER principles," Working Papers hal-03389323, HAL.
    5. repec:spo:wpmain:info:hdl:2441/3rqefhgkm689ibvcj2hnil8dho is not listed on IDEAS
    6. Wang, Banban & Pizer, William A. & Munnings, Clayton, 2022. "Price limits in a tradable performance standard," Journal of Environmental Economics and Management, Elsevier, vol. 116(C).
    7. Kellogg, Ryan, 2020. "Output and attribute-based carbon regulation under uncertainty," Journal of Public Economics, Elsevier, vol. 190(C).
    8. Frédéric Branger & Philippe Quirion, 2014. "Price versus Quantities versus Indexed Quantities," Working Papers 2014.09, FAERE - French Association of Environmental and Resource Economists.
    9. Shreekar Pradhan & J. Scott Holladay & Mohammed Mohsin & Shreekar Pradhan, 2015. "Environmental Policy Instruments and Uncertainties Under Free Trade and Capital Mobility," EcoMod2015 8102, EcoMod.
    10. repec:hal:spmain:info:hdl:2441/3rqefhgkm689ibvcj2hnil8dho is not listed on IDEAS
    11. Pezzey, John C.V. & Jotzo, Frank, 2010. "Tax-Versus-Trading and Free Emission Shares as Issues for Climate Policy Design," Research Reports 95049, Australian National University, Environmental Economics Research Hub.
    12. Jaraitė, Jūratė & Di Maria, Corrado, 2012. "Efficiency, productivity and environmental policy: A case study of power generation in the EU," Energy Economics, Elsevier, vol. 34(5), pages 1557-1568.
    13. Jianfeng Guo & Bin Su & Guang Yang & Lianyong Feng & Yinpeng Liu & Fu Gu, 2018. "How Do Verified Emissions Announcements Affect the Comoves between Trading Behaviors and Carbon Prices? Evidence from EU ETS," Sustainability, MDPI, vol. 10(9), pages 1-17, September.
    14. Samuel Fankhauser & Cameron Hepburn & Jisung Park, 2010. "Combining Multiple Climate Policy Instruments: How Not To Do It," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 1(03), pages 209-225.
    15. Joltreau, Eugénie & Sommerfeld, Katrin, 2016. "Why does emissions trading under the EU ETS not affect firms' competitiveness? Empirical findings from the literature," ZEW Discussion Papers 16-062, ZEW - Leibniz Centre for European Economic Research.
    16. Newell, Richard G. & Pizer, William A., 2008. "Indexed regulation," Journal of Environmental Economics and Management, Elsevier, vol. 56(3), pages 221-233, November.
    17. Jinhua Zhao, 2022. "Aggregate emission intensity targets: Applications to the Paris Agreement," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1875-1897, October.
    18. Annicchiarico, Barbara & Diluiso, Francesca, 2019. "International transmission of the business cycle and environmental policy," Resource and Energy Economics, Elsevier, vol. 58(C).
    19. Borghesi, Simone & Flori, Andrea, 2018. "EU ETS facets in the net: Structure and evolution of the EU ETS network," Energy Economics, Elsevier, vol. 75(C), pages 602-635.
    20. Thomas D. Jeitschko & Pallavi Pal, 2021. "Curbing Price Fluctuations in Cap-and-Trade Auctions," CESifo Working Paper Series 9266, CESifo.
    21. Joseph E. Aldy & William A. Pizer, 2009. "Issues in Designing U.S. Climate Change Policy," The Energy Journal, , vol. 30(3), pages 179-210, July.
    22. Huang, Wenyang & Zhao, Jianyu & Wang, Xiaokang, 2024. "Model-driven multimodal LSTM-CNN for unbiased structural forecasting of European Union allowances open-high-low-close price," Energy Economics, Elsevier, vol. 132(C).

    More about this item

    Keywords

    Decoupling Overlapping Regulations; Promotion of Renewable Energy; Emissions Trading; Intensity Standard;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mar:magkse:201835. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bernd Hayo (email available below). General contact details of provider: https://edirc.repec.org/data/vamarde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.