IDEAS home Printed from https://ideas.repec.org/p/zbw/ifwkwp/2164.html
   My bibliography  Save this paper

The future of (negative) emissions trading in the European Union

Author

Listed:
  • Rickels, Wilfried
  • Proelß, Alexander
  • Geden, Oliver
  • Burhenne, Julian
  • Fridahl, Mathias

Abstract

Under the European Union Emissions Trading System (EU ETS), operators must surrender allowances corresponding to the emissions of greenhouse gases (GHG) from their installations. The supply of allowances in the EU ETS decreases linearly and, all else equal, is expected to end around 2057. An earlier cut-off date is likely to follow from the European Council's recent decision that the EU should reach net-zero GHG emissions by 2050. Scenarios published by the European Commission even anticipate a net-negative cap in the EU ETS from 2045 onwards, generated through carbon dioxide (CO2) removals. Upholding emissions trading, in the long run, therefore entails significant use of credits resulting from atmospheric CO2 removal activities. However, in its current form, the ETS Directive does not contain any legal basis for generating CO2 removal credits. Integrating CO2 removal into the EU ETS would, thus, require fundamental amendments of the ETS Directive, waiving the currently mandatory association binding emitting activities to the adoption of emission abatement technologies. The next policy window for such amendments will open in 2021, following the decision on a more ambitious EU 2030 emission reduction target. This conceptual paper explores various design options for integrating negative emissions technologies (NETs) into the EU ETS. We discuss their potential implications for emissions trading at large and address the specificity of bioenergy with carbon capture and storage (BECCS); repealing the provision that installations exclusively using biomass are not covered by the ETS Directive, BE(CCS) installations could in principle fall within the scope of the ETS Directive. Theoretically, it would be possible to consider free allocation of biogenic credits to BE(CCS) installations. Bioenergy operators could avoid having to surrender these biogenic allowances through the use of CCS and instead sell them on the EU ETS market, having implicitly received credits for the removal of CO2 from the atmosphere.

Suggested Citation

  • Rickels, Wilfried & Proelß, Alexander & Geden, Oliver & Burhenne, Julian & Fridahl, Mathias, 2020. "The future of (negative) emissions trading in the European Union," Kiel Working Papers 2164, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:2164
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/224064/1/1729201571.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Beat Hintermann & Marc Gronwald, 2019. "Linking with Uncertainty: The Relationship Between EU ETS Pollution Permits and Kyoto Offsets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(2), pages 761-784, October.
    2. R. Stuart Haszeldine, 2016. "Can CCS and NET enable the continued use of fossil carbon fuels after CoP21?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 32(2), pages 304-322.
    3. Grischa Perino, 2018. "New EU ETS Phase 4 rules temporarily puncture waterbed," Nature Climate Change, Nature, vol. 8(4), pages 262-264, April.
    4. Hoel, Michael & Karp, Larry, 2002. "Taxes versus quotas for a stock pollutant," Resource and Energy Economics, Elsevier, vol. 24(4), pages 367-384, November.
    5. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2005. "A tale of two market failures: Technology and environmental policy," Ecological Economics, Elsevier, vol. 54(2-3), pages 164-174, August.
    6. Emily Cox & Neil Robert Edwards, 2019. "Beyond carbon pricing: policy levers for negative emissions technologies," Climate Policy, Taylor & Francis Journals, vol. 19(9), pages 1144-1156, October.
    7. Fabio Antoniou & Roland Strausz, 2017. "Feed-in Subsidies, Taxation, and Inefficient Entry," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 925-940, August.
    8. Asbjørn Torvanger, 2019. "Governance of bioenergy with carbon capture and storage (BECCS): accounting, rewarding, and the Paris agreement," Climate Policy, Taylor & Francis Journals, vol. 19(3), pages 329-341, March.
    9. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
    10. Michael Obersteiner & Johannes Bednar & Fabian Wagner & Thomas Gasser & Philippe Ciais & Nicklas Forsell & Stefan Frank & Petr Havlik & Hugo Valin & Ivan A. Janssens & Josep Peñuelas & Guido Schmidt-T, 2018. "How to spend a dwindling greenhouse gas budget," Nature Climate Change, Nature, vol. 8(1), pages 7-10, January.
      • Michael Obersteiner & Johannes Bednar & Fabian Wagner & Thomas Gasser & Philippe Ciais & Nicklas Forsell & Stefan Frank & Petr Havlík & Hugo Valin & Ivan Janssens & Josep Penuelas & Guido Schmidt-Trau, 2018. "How to spend a dwindling greenhouse gas budget," Post-Print hal-02895061, HAL.
    11. Cameron Hepburn & Ella Adlen & John Beddington & Emily A. Carter & Sabine Fuss & Niall Mac Dowell & Jan C. Minx & Pete Smith & Charlotte K. Williams, 2019. "The technological and economic prospects for CO2 utilization and removal," Nature, Nature, vol. 575(7781), pages 87-97, November.
    12. Johannes Bednar & Michael Obersteiner & Fabian Wagner, 2019. "On the financial viability of negative emissions," Nature Communications, Nature, vol. 10(1), pages 1-4, December.
    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. Rickels, Wilfried & Reith, Fabian & Keller, David & Oschlies, Andreas & Quaas, Martin F., 2018. "Integrated Assessment of Carbon Dioxide Removal," Open Access Publications from Kiel Institute for the World Economy 226177, Kiel Institute for the World Economy (IfW Kiel).
    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. Igor Tatarewicz & Michał Lewarski & Sławomir Skwierz & Vitaliy Krupin & Robert Jeszke & Maciej Pyrka & Krystian Szczepański & Monika Sekuła, 2021. "The Role of BECCS in Achieving Climate Neutrality in the European Union," Energies, MDPI, vol. 14(23), pages 1-23, November.
    2. Benjamin K. Sovacool & Chad M. Baum & Sean Low, 2022. "Determining our climate policy future: expert opinions about negative emissions and solar radiation management pathways," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 27(8), pages 1-50, December.

    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. Rickels, Wilfried & Merk, Christine & Honneth, Johannes & Schwinger, Jörg & Quaas, Martin & Oschlies, Andreas, 2019. "Welche Rolle spielen negative Emissionen für die zukünftige Klimapolitik?," Open Access Publications from Kiel Institute for the World Economy 261840, Kiel Institute for the World Economy (IfW Kiel).
    2. Rickels, Wilfried & Merk, Christine & Honneth, Johannes & Schwinger, Jörg & Quaas, Martin F. & Oschlies, Andreas, 2019. "Welche Rolle spielen negative Emissionen für die zukünftige Klimapolitik? Eine ökonomische Einschätzung des 1,5°C-Sonderberichts des Weltklimarats," Kiel Working Papers 2116, Kiel Institute for the World Economy (IfW Kiel).
    3. Burke, Joshua & Gambhir, Ajay, 2022. "Policy incentives for greenhouse gas removal techniques: the risks of premature inclusion in carbon markets and the need for a multi-pronged policy framework," LSE Research Online Documents on Economics 115010, London School of Economics and Political Science, LSE Library.
    4. Halvor Briseid Storrøsten, 2012. "Prices vs. quantities: Technology choice, uncertainty and welfare," Discussion Papers 677, Statistics Norway, Research Department.
    5. Larry Karp & Jiangfeng Zhang, 2016. "Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information," Studies in Economic Theory, in: Graciela Chichilnisky & Armon Rezai (ed.), The Economics of the Global Environment, pages 493-533, Springer.
    6. Ralph Winkler, 2008. "Optimal compliance with emission constraints: dynamic characteristics and the choice of technique," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(4), pages 411-432, April.
    7. Guy Meunier, 2015. "Prices vs. quantities in presence of a second, unpriced, externality," Working Papers hal-01242040, HAL.
    8. Stavins, Robert N., 2019. "The Future of U.S. Carbon-Pricing Policy: Normative Assessment and Positive Prognosis," Working Paper Series rwp19-017, Harvard University, John F. Kennedy School of Government.
    9. Karp, Larry & Traeger, Christian, 2024. "Taxes versus quantities reassessed," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    10. Christian Traeger & Grischa Perino & Karen Pittel & Till Requate & Alex Schmitt, 2020. "The Flexcap – An Innovative CO2 Pricing for Germany," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 18(01), pages 42-48, April.
    11. Reyer Gerlagh & Roweno J.R.K. Heijmans, 2018. "Regulating Stock Externalities," CESifo Working Paper Series 7383, CESifo.
    12. repec:bla:germec:v:11:y:2010:i::p:86-107 is not listed on IDEAS
    13. Rickels, Wilfried & Peterson, Sonja & Felbermayr, Gabriel, 2019. "Schrittweise zu einem umfassenden europäischen Emissionshandel," Kiel Policy Brief 127, Kiel Institute for the World Economy (IfW Kiel).
    14. Vollebergh, Herman & van der Werf, Edwin & Vogel, Johanna, 2023. "A descriptive framework to evaluate instrument packages for the low-carbon transition," Ecological Economics, Elsevier, vol. 205(C).
    15. Christian Traeger & Grischa Perino & Karen Pittel & Till Requate & Alex Schmitt, 2019. "Das Flexcap – eine innovative CO₂-Bepreisung für Deutschland," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(18), pages 38-45, September.
    16. Halvor Storrøsten, 2014. "Prices Versus Quantities: Technology Choice, Uncertainty and Welfare," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(2), pages 275-293, October.
    17. Gilbert E. Metcalf, 2009. "Designing a Carbon Tax to Reduce U.S. Greenhouse Gas Emissions," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(1), pages 63-83, Winter.
    18. Costello, Christopher & Karp, Larry, 2004. "Dynamic taxes and quotas with learning," Journal of Economic Dynamics and Control, Elsevier, vol. 28(8), pages 1661-1680, June.
    19. David M. Newbery & David M. Reiner & Robert A. Ritz, 2018. "When is a carbon price floor desirable?," Working Papers EPRG 1816, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    20. Roberton Williams, 2002. "Prices vs. Quantities vs. Tradable Quantities," NBER Working Papers 9283, National Bureau of Economic Research, Inc.
    21. Richard Newell & William Pizer & Jiangfeng Zhang, 2005. "Managing Permit Markets to Stabilize Prices," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(2), pages 133-157, June.

    More about this item

    Keywords

    European Emission Trading; Carbon Dioxide Removal; Negative Emission Technologies;
    All these keywords.

    JEL classification:

    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
    • 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

    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:zbw:ifwkwp:2164. 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: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/iwkiede.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.