IDEAS home Printed from https://ideas.repec.org/p/zbw/rwipos/65.html
   My bibliography  Save this paper

The right way to reform the EU emissions trading system: Alternatives to the market stability reserve

Author

Listed:
  • Andor, Mark A.
  • Frondel, Manuel
  • Sommer, Stephan

Abstract

In the light of persistently low prices for allowances, there is much debate about reforming the EU emissions trading system. Based on a proposal of the European Commission, the EU plans to introduce the so called Market Stability Reserve in 2019: a mechanism that regulates the amount of allowances within the market by temporarily taking some of the allowances into a reserve. The Commission thereby aims at reducing the surplus and securing a higher market price for allowances. An alternative reform proposal is the introduction of a minimum price. This RWI position puts forward a third alternative: retaining the emissions trading system in its original form and reducing the surplus by a one-time adjustment. In 2014, 900 million allowances from the years 2014 to 2016 were back-loaded to be auctioned in the years 2019 and 2020. Instead, these allowances should be deleted. Furthermore, if necessary, the amount of allowances could be constantly decreased by reducing the cap more strongly than planned. Compared with the other reform options, retaining the emissions trading system in its original form has two major advantages: first, politically driven interventions are minimized and, second, free market prices exhibit a stabilizing effect for fluctuations caused by the business cycle.

Suggested Citation

  • Andor, Mark A. & Frondel, Manuel & Sommer, Stephan, 2015. "The right way to reform the EU emissions trading system: Alternatives to the market stability reserve," RWI Positionen 65, RWI - Leibniz-Institut für Wirtschaftsforschung.
    • Handle: RePEc:zbw:rwipos:65
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/110634/1/826286518.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Harrison Fell & Richard Morgenstern, 2010. "Alternative Approaches to Cost Containment in a Cap-and-Trade System," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(2), pages 275-297, October.
    2. Grüll, Georg & Taschini, Luca, 2011. "Cap-and-trade properties under different hybrid scheme designs," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 107-118, January.
    3. repec:zbw:rwirep:0542 is not listed on IDEAS
    4. Manuel Frondel & Stephan Sommer & Colin Vance, 2015. "The burden of Germanyùs energy transition: An empirical analysis of distributional effects," Economic Analysis and Policy, Elsevier, vol. 45(c), pages 89-99.
    5. Claudia Gibis & Jan Weiß & Christoph Kühleis, 2015. "Stärkung des Europäischen Emissionshandels notwendig und greifbar," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(01), pages 26-31, January.
    Full references (including those not matched with items on IDEAS)

    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. Andor, Mark Andreas & Frondel, Manuel & Sommer, Stephan, 2015. "Reform des EU-Emissionshandels: Alternativen zur Marktstabilitätsreserve," RWI Materialien 87, RWI - Leibniz-Institut für Wirtschaftsforschung.
    2. Andor, Mark Andreas & Frondel, Manuel & Sommer, Stephan, 2015. "Reform des EU-Emissionshandels: Eine Alternative zu Mindestpreisen für Zertifikate und der Marktstabilitätsreserve," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 64(2), pages 171-188.
    3. repec:zbw:rwimat:087 is not listed on IDEAS
    4. Mark A. Andor & Manuel Frondel & Stephan Sommer, 2015. "Diskussionspapier: Reform des EU-Emissionshandels: Alternativen zur Marktstabilitätsreserve," RWI Materialien, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 23, 04.
    5. Andrew Yates, 2012. "On a Fundamental Advantage of Permits Over Taxes for the Control of Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(4), pages 583-598, April.
    6. Brauneis, Alexander & Mestel, Roland & Palan, Stefan, 2013. "Inducing low-carbon investment in the electric power industry through a price floor for emissions trading," Energy Policy, Elsevier, vol. 53(C), pages 190-204.
    7. Timothy N. Cason & John K. Stranlund & Frans P. de Vries, 2022. "Investment Incentives in Tradable Emissions Markets with Price Floors Approach," Purdue University Economics Working Papers 1331, Purdue University, Department of Economics.
    8. Stranlund, John K. & Murphy, James J. & Spraggon, John M. & Zirogiannis, Nikolaos, 2019. "Tying enforcement to prices in emissions markets: An experimental evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    9. Kollenberg, Sascha & Taschini, Luca, 2016. "Emissions trading systems with cap adjustments," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 20-36.
    10. Stranlund, John K. & Moffitt, L. Joe, 2014. "Enforcement and price controls in emissions trading," Journal of Environmental Economics and Management, Elsevier, vol. 67(1), pages 20-38.
    11. Stranlund, John K. & Murphy, James J. & Spraggon, John M., 2014. "Price controls and banking in emissions trading: An experimental evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 68(1), pages 71-86.
    12. Kollenberg, Sascha & Taschini, Luca, 2019. "Dynamic supply adjustment and banking under uncertainty in an emission trading scheme: The market stability reserve," European Economic Review, Elsevier, vol. 118(C), pages 213-226.
    13. Fell, Harrison & Burtraw, Dallas & Morgenstern, Richard D. & Palmer, Karen L., 2012. "Soft and hard price collars in a cap-and-trade system: A comparative analysis," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 183-198.
    14. Yu, Jongmin & Mallory, Mindy L., 2015. "An optimal hybrid emission control system in a multiple compliance period model," Resource and Energy Economics, Elsevier, vol. 39(C), pages 16-28.
    15. repec:grz:wpsses:2011-01 is not listed on IDEAS
    16. Holland, Stephen P. & Yates, Andrew J., 2015. "Optimal trading ratios for pollution permit markets," Journal of Public Economics, Elsevier, vol. 125(C), pages 16-27.
    17. Ren'e Aid & Sara Biagini, 2021. "Optimal dynamic regulation of carbon emissions market: A variational approach," Papers 2102.12423, arXiv.org.
    18. John K. Stranlund & Insung Son, 2019. "Prices Versus Quantities Versus Hybrids in the Presence of Co-pollutants," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(2), pages 353-384, June.
    19. Wolfgang Buchholz & Jonas Frank & Hans-Dieter Karl & Johannes Pfeiffer & Karen Pittel & Ursula Triebswetter & Jochen Habermann & Wolfgang Mauch & Thomas Staudacher, 2012. "Die Zukunft der Energiemärkte: Ökonomische Analyse und Bewertung von Potenzialen und Handlungsmöglichkeiten," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 57.
    20. Lintunen, Jussi & Kuusela, Olli-Pekka, 2018. "Business cycles and emission trading with banking," European Economic Review, Elsevier, vol. 101(C), pages 397-417.
    21. Khezr, Peyman & MacKenzie, Ian A., 2018. "Permit market auctions with allowance reserves," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 283-306.
    22. Claudia Kettner-Marx & Daniela Kletzan-Slamanig & Angela Köppl & Thomas Schinko & Andreas Türk, 2011. "ETCLIP – The Challenge of the European Carbon Market: Emission Trading, Carbon Leakage and Instruments to Stabilise the CO2 Price. Price Volatility in Carbon Markets: Why it Matters and How it Can be ," WIFO Working Papers 409, WIFO.

    More about this item

    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:rwipos:65. 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/rwiesde.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.