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The EU emissions trading scheme allowance prices, trade flows and competitiveness effects

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  • Klepper, Gernot
  • Peterson, Sonja

Abstract

The upcoming European Emissions Trading Scheme (ETS) is one of the more controversial climate policy instruments. Predictions about its likely impact and its performance can at present only be made to a certain degree. As long as the National Allocations Plans are not finally settled the overall supply of allowances is not determined. In this paper, we will identify key features and key impacts of the EU ETS by scanning the range of likely allocation plans using the simulation model DART. The analysis of the simulation results highlights a number of interesting details in terms of allowance trade flows between Member States, of allowance prices, and in terms of the role of the accession countries in the ETS. An important finding about the impact of the new ETS with respect to achieving emission reductions more efficiently, i.e. at lower cost, is that savings can only be realized if the cap on emissions is distributed between the ETS sector and the rest of the economy in such a way that the different abatement costs are taken into account. This would imply a relatively small allocation of emissions to the ETS sector. The second important result concerns the role of the accession countries. Even if they do not supply their hot-air in the ETS market, they contribute substantially to the cost savings of the ETS by offering low cost abatement options.

Suggested Citation

  • Klepper, Gernot & Peterson, Sonja, 2004. "The EU emissions trading scheme allowance prices, trade flows and competitiveness effects," Open Access Publications from Kiel Institute for the World Economy 3270, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkie:3270
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    References listed on IDEAS

    as
    1. Klepper, Gernot & Peterson, Sonja & Springer, Katrin, 2003. "DART97: a description of the multi-regional, multi-sectoral trade model for the analysis of climate policies," Kiel Working Papers 1149, Kiel Institute for the World Economy (IfW Kiel).
    2. Johan Albrecht (ed.), 2002. "Instruments for Climate Policy," Books, Edward Elgar Publishing, number 2492.
    3. Christoph Bohringer, 2002. "Industry-level emission trading between power producers in the EU," Applied Economics, Taylor & Francis Journals, vol. 34(4), pages 523-533.
    4. Gagelmann, Frank & Hansjürgens, Bernd, 2002. "Climate protection through tradable permits: The EU proposal for a CO2 emissions trading system in Europe," UFZ Discussion Papers 1/2002, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    EU emissions trading scheme; permit allocation; Kyoto targets; computable general equilibrium model; DART;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • F18 - International Economics - - Trade - - - Trade and Environment
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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