European Union Emissions Trading Research Articles

Techno-Economic Analysis of Electrofuel as a Shipping Fuel

Abstract In this study, we aim to evaluate the technical and economic requirements of electrofuel production through Fischer–Tropsch synthesis using green hydrogen and CO2. We find that a plant with a 1000-barrel/day capacity necessitates 60 tH2 and 424 tCO2 daily, achieving a 36% hydrogen-to-electrofuel conversion rate. The initial capital expenditure (CAPEX) is projected at 295 million USD, with an additional 139 million USD for electrolyzer replacement. The hydrogen production unit accounts for 61% of the CAPEX, followed by the direct air capture unit at 22%. The annual operating expense (OPEX) is estimated at 49.3 million USD, with hydrogen production and direct air capture constituting 58% and 25% of this expense, respectively, largely due to substantial electricity requirements. The synthesis and refining units comprise 17% of the OPEX. The levelized cost of electrofuel is calculated at 1881 USD/t, which is 2.5 times the cost of marine gas oil and 3.8 times that of very low sulfur fuel oil. However, electrofuels emission factor is found to be significantly lower, nearly 14 times less carbon-intensive than traditional fuels. We conclude that electrofuels cost competitiveness with fossil fuels depends on favorable conditions such as low electricity costs, low discount rates, and high carbon prices. While the European Union's emission trading system inclusion for maritime transport will lessen the cost disparity, it is unlikely to make electrofuels cost-competitive given the current carbon prices.

Implied threats of the Red Sea crisis to global maritime transport: amplified carbon emissions and possible carbon pricing dysfunction

Recent military acts in the Red Sea and Gulf of Aden are forcing merchant ships to reroute, thereby driving up international shipping rates, prolonging delivery dates, and causing additional greenhouse gas emissions. Utilizing the European Union (EU) Monitoring, Reporting, and Verification emissions database and real time Automatic Identification System data, this study conducted frequency analysis and causative investigation on container ships circumnavigating the Cape of Good Hope. The findings indicate that the current policy framework under the EU Emissions Trading System (EU-ETS) poses a higher risk of carbon leakage, particularly for medium and small-sized container ships, thereby undermining the effectiveness of the nascent EU maritime carbon pricing. If the crisis continues, combined with anticipated tighter emission regulations, this risk is expected to escalate. International maritime policy administrators should make timely adjustments in response to the chain reactions caused by war, enhancing the robustness of cross-regional carbon pricing.

Exploring the potential of biological methanation for future defossilization scenarios: Techno-economic and environmental evaluation

The REPowerEU plan establishes the production objective of 35 billion m3 of biomethane in the European Union (EU) by 2030. Biomethane is an excellent energy vector to promote the defossilization of different sectors within a Power-to-Gas approach. The present study evaluates the economic and environmental implications of producing biomethane from the biogas generated in a municipal wastewater treatment plant (WWTP) with a treatment capacity of 100,000 m3/d and 500,000 population equivalents. The techno-economic analysis (TEA) and life cycle assessment (LCA) were conducted for a biomethane production plant based on biological methanation process using the hydrogen produced in a water electrolyser. The TEA illustrated that the electricity price (0–0.20 €/kWh) features an important impact on the biomethane cost (0.05–0.23 €/kWhHHV) due to the high electrolyser energy consumption. Flexible operation of the electrolyser is economically feasible at load factors above 35 %, which can be attributed to the lower impact of the electrolyser capital cost as the load factor increases. The LCA illustrated that biomethane has a lower global warming impact (<0.28 kgCO2-eq/kWhHHV) than fossil natural gas when the renewable electricity production in the mix is above 62 %. The results highlighted that high carbon prices under the EU Emission Trading System is an important driver to promote biomethane production in European countries since energy production from biomethane could be exempted to acquire emission allowances. This would provide a competitive advantage of biomethane over natural gas when considering the whole supply chain of the energy carrier. Overall, this study demonstrates that biological methanation has the potential to become an important biomethane production technology for future defossilization scenarios.

Permanence and Liability: Legal Considerations on the Integration of Carbon Dioxide Removal into the EU Emissions Trading System

AbstractThis article examines how carbon dioxide (CO2) removal credits can be integrated into the European Union (EU) Emissions Trading System (ETS), focusing on questions of permanence and climate liability. It identifies challenges within the integration process and analyzes approaches from practice and literature to cultivate learning. These approaches apply different strategies to address the issue of permanence, including temporary credit issuance, granting credits once a certain number of carbon tonne-years have been accumulated, or issuing credits at the beginning of the project period and relying on liability instead. Drawing from the findings of this research, the article presents legal considerations that may inform a proposal for an EU legislative act on the integration of carbon removal credits into the EU ETS. It suggests that only credits issued for permanent CO2 removal should be integrated to ensure the environmental integrity of the system. Furthermore, the liability of the project operator should transfer to the Member State under certain conditions to make liability risks more predictable.

Allocation and trading schemes of the maritime emissions trading system: Liner shipping route choice and carbon emissions

In September 2020, the European Union (EU) decided to include the maritime industry into the EU emissions trading system to effectively control carbon emissions from ships, namely the maritime emissions trading system (METS). Various allocation and trading schemes are adopted in practice. This paper investigates a comparison of allocation and trading schemes of the METS from the perspective of liner shipping carriers and regulators, respectively. We explore how to determine the optimal allocation and trading scheme of the METS and how the liner shipping route (LSR) choice decision (following or avoiding the METS) and carbon emissions will be affected. For liner shipping carriers, we use a mixed-integer linear programming model that aims to reduce carriers’ costs to formulate our problem. For regulators, we present a bi-level programming model that aims to reduce carbon emissions. In numerical experiments, we further analyze the impact of joining the METS on the scheme choice, LSR choice and emissions by considering the European Economic Area and the Red Sea being covered by the METS. Numerical experiments are provided to show the effectiveness of our proposed models.

Wzrastające znaczenie polityki klimatycznej w Unii Europejskiej po wejściu w życie traktatu z Maastricht: główne przyczyny, skutki i wyzwamia

Climate policy is a new area of European integration, although there were no exact references to the issue of climate change in the Maastricht Treaty. However, this article draws attention to the interesting coincidence of the creation of the European Union (EU) in the 1990s and the consequences of the Earth Summit in Rio de Janeiro which started the process of greening the EU Member States’ foreign policies and enhanced the importance of environmental and climate protection issues on the international agenda. The Member States and EU institutions, acting within the institutional framework defined by the Maastricht Treaty, in the face of the limitations resulting from unanimous voting in taxation policy, started to develop climate policy (in particular, the EU Emissions Trading System), mainly based on environmental law, enabling decisions to be taken by a qualified majority. The growing importance of climate policy in the EU was influenced by many factors and the different motivations of individual Member States and other European policy actors. After depicting the main causes and effects of the growing importance of EU climate policy, the article discusses the most important challenges facing the EU with regard to the implementation of an ambitious climate policy. In recent years, one of the main reasons for this increase is the fact that each of the successive overlapping crises (concerning migration, pandemic, Russia–Ukraine war or spiking energy prices) is a suitable opportunity to strengthen EU climate policy.

How to integrate ports into the EU ETS: the CAS approach perspective

PurposeThe European Union's Emissions Trading System (EU ETS), which is already one of the EU's most impactful instruments for reducing greenhouse gases (GHGs), will soon include the maritime transport industry. Although ports are this industry's most environmental-friendly component, there are still some barriers to including ports in the system. Therefore, the purpose of the study is to identify these barriers and to reveal the barriers' interrelationships.Design/methodology/approachThe study was conducted by identifying barriers from a literature review before analyzing the barriers with the Fuzzy DEMATEL method. Finally, based on the Complex Adaptive System Approach, various solutions are proposed to overcome these barriers.FindingsThe identified barriers were grouped into cause-and-effect groups. Two barriers, namely long payback period and high investment costs, were evaluated as triggers of the model while the others were more sensitive to the model.Research limitations/implicationsThis study only includes the perceptions of green certificated ports in Türkiye. The results revealed an expectation that elimination of financial concerns will alleviate other barriers to including ports in the system. The study's findings can guide port managers on the integration of the managers' processes into the system.Originality/valueThis study provides novel findings regarding the relationships between barriers hindering ports from involvement in the EU ETS.

Climate regulation costs and firms’ distress risk

AbstractIn 2013, the European Union's Emission Trading Scheme (EU‐ETS) entered Phase III. The majority of emission permits in Phase III are auctioned instead of being allocated for free as in Phases I and II. Using a difference‐in‐differences method, we show that this change has led to an increase in the financial distress risk of the EU‐ETS‐regulated firms when compared to unregulated firms, suggesting that the EU‐ETS imposes a significant financial burden on regulated firms. This result is robust to an array of validation tests, alleviating concerns that it is driven by unobserved factors. In additional analyses we show that the increase in distress risk of regulated firms during Phase III can be explained by, (i) an additional climate regulation cost to purchase pollution permits and (ii) a low average environmental score that possibly (via high sustainability risk) lowers investors expectations regarding firms’ performance. Our findings also show that the distress risk increase is higher for regulated firms operating within countries with lower control of corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice accountability before the EU‐ETS implementation.

Углеродный сбор Евросоюза:на пересечении климатической и внешнеторговой политики

The European Union (EU) is getting ready for the implementation of СBAM — the world’s first carbon border adjustmentmechanism. This article explores the correlation between intra-European and international facets of СBAM as two sides ofthe same coin: while appending the EU Emissions Trading Scheme, it is equally an instrument of foreign trade, immediatelytouching upon EU relations with trade partners and specialized international organizations. Once such correlation is takeninto account, it becomes evident why the design of the European carbon levy remains capable of improvement as far as fightingclimate change goes.The concept of multilevel governance assists this research as the basis for analyzing СBAM. The institutionalist approachclarifies the specifics of the European carbon border adjustment mechanism. They are important in order to scopeout its true perspective. In particular, the MLG approach helps to expose the blurred lines between market regulation andtax policy in European governance practice.The ways, if any, that СBAM differs from a carbon tax and, at the same time, is similar to a carbon tariff are considered.A reappraisal made in the article of this hybrid measure makes it possible to draw a conclusion that, as envisioned bythe European Commission, it is meant to ensure more favourable conditions for investments in cost-intensive, low-carbontechnologies while suppressing competition from cheaper, high-carbon imports. At the same time, so as to avoid unleashingtrade wars, it is important for the Commission to assure the maximum possible conformity of СBAM to the World TradeOrganization’s (WTO) legal requirements. Compatibility with WTO law would enhance the ecological legitimacy of theregulatory mechanism in question. It would make sure that international partners would not regard СBAM as a form ofgreen protectionism.Further, the subtle aspects of preferences in terms of СBAM design are discussed, as held by the Commission, EUmember states, the European Parliament, and the representatives of European carbon-intensive industries. Particular attentionis paid to the discussion in the EU on the issue of connecting export rebates for inside producers to CBAM.

Does the European Union energy policy support progress in decoupling economic growth from emissions?

This study investigates the impact of the European Union (EU) energy policy on decoupling economic growth from emissions in the EU countries in the period between 1995 and 2017. The following three types of greenhouses gas emissions are considered in the study: emissions covered by the EU Emissions Trading System (EU ETS), production-based emissions (PBA), and consumption-based emissions (CBA). Decoupling emissions from the output is assessed in the successive phases of the EU ETS for trend components in the long run and for cyclical components in the short run.The results obtained reveal an ambiguous role played by the EU energy policy in long-term decoupling. On the one hand, there has been progress in decoupling economic growth from emissions covered by the EU ETS and production-based emissions in the EU-15 and in the new EU countries. On the other hand, in the case of consumption-based emissions, no progress has been recorded in both groups of countries. The results confirm a significant difference between the EU-15 and the new EU countries only when long-term decoupling is considered. The negative relationship between emissions covered by the EU ETS and production-based emissions and output is much stronger in the EU-15 countries than in the new EU countries.

Techno-economic evaluation of medium scale power to hydrogen to combined heat and power generation systems

The European Hydrogen Strategy and the new « Fit for 55 » package indicate the urgent need for the alignment of policy with the European Green Deal and European Union (EU) climate law for the decarbonization of the energy system and the use of hydrogen towards 2030 and 2050. The increasing carbon prices in EU Emission Trading System (ETS) as well as the lack of dispatchable thermal power generation as part of the Coal exit are expected to enhance the role of Combined Heat and Power (CHP) in the future energy system. In the present work, the use of renewable hydrogen for the decarbonization of CHP plants is investigated for various fossil fuel substitution ratios and the impact of the overall efficiency, the reduction of direct emissions and the carbon footprint of heat and power generation are reported. The analysis provides insights on efficient and decarbonized cogeneration linking the power with the heat sector via renewable hydrogen production and use. The levelized cost of hydrogen production as well as the levelized cost of electricity in the power to hydrogen to combined heat and power system are analyzed for various natural gas substitution scenarios as well as current and future projections of EU ETS carbon prices.

Achieving agricultural greenhouse gas emission reductions in the EU post‐2030: What options do we have?

AbstractBy 2030, the European Union (EU) must have regulatory instruments in place that not only reduce greenhouse gas emissions from agriculture, but that also increase carbon sequestration, increase resilience of agricultural production, improve biodiversity in rural areas and contribute to providing nutritious and healthy food to a growing world population. This article seeks to explore the EU's regulatory options to pursue these goals. Relying on the theoretical framework on smart environmental regulation by Gunningham, Grabosky and Sinclair, this article assesses recent proposals by the European Commission under its European Green Deal and Farm to Fork policies, as well as other regulatory instruments that need to be considered as part of the instrument mix. It concludes that regulatory intervention needs to be stepped up, particularly through using several opportunities that the EU emissions trading system offers to complement the regulatory toolbox.

Beyond Control: Policy Incoherence of the EU Emissions Trading System

In this article, we explain why the current climate policy mix of the European Union (EU), consisting of the EU Emissions Trading System (ETS) and overlapping policies, is incoherent with respect to emission abatement and cost-effectiveness. The concept of policy coherence guides our analysis in identifying the EU ETS’ current dynamic supply adjustment mechanism, the Market Stability Reserve (MSR), to be at the heart of the shortcomings of current market design. Incoherence emerges due to the MSR’s quantity-based indicator for scarcity. It only works well for current and past demand fluctuations, but not for anticipated changes in demand, e.g., caused by a member state’s fossil-fuel phase-out. As a result, instead of fostering synergies as intended, the MSR undermines coherence by creating backfiring interactions and making precise predictions of overlapping policies’ impacts close to impossible. Considering the European Commission’s reform proposal of July 2021, we argue that a change in the MSR’s parametrisation leaves the fundamental cause of incoherence unaddressed. Based on recent findings in the economics literature, we propose introducing a price-based indicator for scarcity as a solution to substantially reduce the current incoherence of the policy mix.

Brace for turbulence: EU Member States’ climate strategies in the aviation sector

The European Green Deal (EGD) aims to transform the European Union (EU) into a climate neutral continent by 2050, requiring significant changes within carbon-intensive sectors. In this article, we examine EU Member States’ climate strategies in the aviation sector, where greenhouse gas emissions have doubled since 1990. We analyse EU National Energy and Climate Plans (NECPs) in order to examine national commitments on aviation. How frequently do EU Member States refer to aviation in their NECPs, and how can these references be understood thematically? First, by conducting a content analysis on all 54 draft and final NECPs, we identify how frequently 11 aviation-related terms were used. While all states increased the number of aviation references between their draft and final NECPs, Central and Eastern states showed the smallest increase. We show that Southern and Western Member States reference aviation most frequently in their final NECPs. Second, in our thematic analysis, we identify three key themes—‘contextual information’, ‘public policy’, and ‘fuels and propulsion’—that we divide into 17 sub-themes. Approximately half of the themes focused on contextual information, such as current aviation emissions, with the other half focusing on carbon reduction strategies, especially the EU Emissions Trading System, biofuels, and taxation. Western EU states provided the largest number of concrete policy statements on reducing aviation emissions and the promotion of biofuels. There were only two references to reducing the number of flights, across almost 7500 pages of climate documents. We conclude that the NECPs represent a promising means of conducting cross-country climate policy analysis, in order to compare efforts across economic sectors within Europe. With our analysis, we create a pre-pandemic sectoral baseline for aviation which can be used for further study.

Implementing the EU Climate Law via the ‘Fit for 55’ package

ABSTRACT To implement the European Union (EU) Climate Law’s newly established 55% greenhouse gas reduction objective for 2030, the EU Commission suggests a wave of reforms to the European energy and climate legislation. The contribution aims to describe the EU Commission’s 16 initial legislative and strategic proposals regarding the major pillars of the European energy and climate legislation and intends to give an overview on the suggested reforms. By comparing the legal status quo with the legal framework de lege ferenda as presented by the Commission’s proposals, the planned major changes to the legal structures are identified. To achieve the 55% greenhouse gas reduction objective for 2030, all existing legal climate and energy acts are planned to be tightened by amending their targets as well as scopes and revising their structures. The suggested reforms concern the existing EU emissions trading system, effort sharing system between the Member States, energy taxation, energy efficiency and renewable energies. Additionally, the implementation of new instruments, such as the second EU emissions trading system for the sectors buildings and transport, the Carbon Border Adjustment Mechanism and the Social Climate Fund, is proposed. The design of the package shows that the Commission still generally pursues a climate legislation characterized by a mix of instruments and policies being both price based and regulatory. So, even though the major proposed change—the introduction of a second separate emissions trading system—would strengthen the role of carbon pricing, the Commission still relies on a mix of instruments without defining a leading instrument.

Pricing carbon in the aviation sector: Evidence from the European emissions trading system

A policy change in the European Union's Emissions Trading Scheme (EU ETS) provides us with a unique opportunity to measure the impact of carbon pricing on aviation, the most climate-intensive mode of transport. We implement a difference-in-differences strategy on a sample based on all flights within Europe from 2010 to 2016 to examine the causal impact of the EU ETS on emissions and supply. We find that the EU ETS reduced emissions by 4.7% in the regulated routes relative to the counterfactual. When we restrict the sample to short-haul flights, routes on which competition from other means of transport may exist (less than 1,000 km), the reduction in emissions is 10.7%. Finally, the reduction in emissions is also high for low-cost airlines (−11%) but it is not statistically significant for network airlines. In sum, the EU ETS has helped to mitigate emission growth by 3 Mt CO2 per year during the period analyzed, but not to reduce absolute emissions in the sector, as needed.

Optimal Slow Steaming Speed for Container Ships under the EU Emission Trading System

Slow steaming is an operational measure in ocean-going vessels sailing at slow speeds. It can help climate mitigation efforts by cutting down marine fuel consumption and consequently reducing CO2 and other Greenhouse Gas Emissions (GHG). Due to climate change both the European Union (EU) and the International Maritime Organization (IMO) are analysing the inclusion of international shipping in the EU Emissions Trading System (ETS) in the near future or alternatively implementing a carbon tax. The paper proposes a methodology to decide the optimal speed of a vessel taking into account its characteristics and the factors that determine its economic results. The calculated cash flow can be used in valuation models. The methodology is applied for a case study for any container ship in a range from 2000 to 20,000 Twenty-foot Equivalent Units (TEU) on a leg of a round trip from Shanghai to Rotterdam. We calculate how speed reduction, CO2 emissions and ship owner’s earnings per year may vary between a business-as-usual scenario and a scenario in which shipping is included in the ETS. The analysis reveals that the optimal speed varies with the size of the vessel and depends on several variables such as marine fuel prices, cargo freight rates and other voyage costs. Results show that the highest optimal speed is in the range of 5500–13,000 TEUs whether or not the ETS is applied. As the number of TEUs transported in a vessel increases emissions per TEU decrease. In an established freight rate market, the optimal speed fluctuates by 1.8 knots. Finally, the medium- and long-term expectations for slow steaming are analysed based on future market prices.

Hedging and temporal permit issuances in cap-and-trade programs: The Market Stability Reserve under risk aversion

Cap-and-trade programs such as the European Union's Emissions Trading System (EU ETS) expose firms to considerable risks, to which the firms can respond with hedging. We develop an intertemporal stochastic equilibrium model to analyze the implications of hedging by risk-averse firms. We show that the resulting time-varying risk premium depends on the size of the permit bank. Applying the model to the EU ETS, we find that hedging can lead to a U-shaped price path, because prices initially fall due to negative risk premiums and then rise as the hedging demand declines. The Market Stability Reserve (MSR) reduces the permit bank and thus, increases the hedging value of the permits. This offers an explanation for the recent price hike, but also implies that prices may decline in the future due to more negative risk premiums. In addition, we find higher permit cancellations through the MSR than previous analyses, which do not account for hedging.

Estimation of a term structure model of carbon prices through state spaces methods: a pitch

PurposeThe pitching research template (PRT) is designed to help pitchers identify the core elements that form the framework of any research project. This paper aims to provide a brief commentary on an application of the PRT to pitch an environmental finance research topic with a personal reflection on the pitch exercise discussed.Design/methodology/approachThis paper applies the PRT developed by Faff (2015, 2019) to a research project on estimating the strength of carbon pricing signals under the European Union Emissions Trading Scheme.FindingsThe PRT is found to be a valuable tool to refine broad ideas into impactful and novel research contributions. The PRT is recommended for use by all academics regardless of field and particularly PhD students to structure and communicate their research ideas. The PRT is found to be particularly well suited to pitch replication studies, as it effectively summarizes both the “idea” and proposed “twist” of a replication study.Originality/valueThis letter is a reflection on a research teams experience with applying the PRT to pitch a replication study at the 2020 Accounting and Finance Association of Australia and New Zealand event. This event focused on replicable research and was a unique opportunity for research teams to pitch their replication research ideas.

Normative power Europe, ASEAN and Thailand

Recognising the existence of political, democratic, and humanitarian problems in ASEAN and the fact that human rights remain an important stumbling block in the relations between the two regional organisations, the European Union (EU) has opted for a more pragmatic approach in two ways: first, by addressing a wide range of developmental issues and agendas in the numerous forms of cooperation with ASEAN; second, by implementing an adaptative policy to focus more on a region-to-state approach through development aid packages, and by fostering agreements of cooperation, especially with Thailand, a country case study. Since the EU possesses more leverage in region-to-state than region-to-region relations, it is apparent that the EU’s pressures on Thailand have yielded more desirable results than on ASEAN. The EU’s pressure to make Thailand conform to a set of values such as democratic elections, freedom of expression, and just and fair trade has generated tensions between the two, particularly during the period of military junta rule in Thailand between May 2014–July 2019. This paper therefore examines how the bilateral relations between the EU and Thailand contribute to the EU’s normative aims. It uses Ian Manners’ concept of Normative Power Europe (NPE) to assess the extent to which the European Commission, as the EU’s external relations actor, could exert normative pressures on Thailand and contribute to changes in the latter’s political and economic norms. The paper raises four examples to illustrate its point: the EU’s call for democratic election and protection of human rights; the campaign against capital punishment; the ban on illegal fishing; and the implementation of EU emission trading system (ETS).