Abstract
AbstractThe 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 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. Copyright © 2004 John Wiley & Sons, Ltd and ERP Environment.
Highlights
When the European Emissions Trading Scheme (ETS) for CO2 will start in 2005, it will be known as one of the more controversial climate policy instruments
While proponents advocate its contribution to meeting the European Kyoto targets at minimal costs, opponents including some policy makers and industry claim that it will lead to negative competitiveness effects for the participating sectors
The European Directive leaves it up to the Member States to determine within their National Allocation Plans (NAP) which proportion of the emission reduction is to be supplied by those sectors participating within the ETS, and which proportion is supplied from the rest of the economy
Summary
When the European Emissions Trading Scheme (ETS) for CO2 will start in 2005, it will be known as one of the more controversial climate policy instruments. The European Directive leaves it up to the Member States to determine within their National Allocation Plans (NAP) which proportion of the emission reduction is to be supplied by those sectors participating within the ETS, and which proportion is supplied from the rest of the economy.
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