Greenhouse Gas Emissions Trading Research Articles

Uncertainty of forest carbon stock changes – implications to the total uncertainty of GHG inventory of Finland

Uncertainty analysis facilitates identification of the most important categories affecting greenhouse gas (GHG) inventory uncertainty and helps in prioritisation of the efforts needed for development of the inventory. This paper presents an uncertainty analysis of GHG emissions of all Kyoto sectors and gases for Finland consolidated with estimates of emissions/removals from LULUCF categories. In Finland, net GHG emissions in 2003 were around 69 Tg (±15 Tg) CO2 equivalents. The uncertainties in forest carbon sink estimates in 2003 were larger than in most other emission categories, but of the same order of magnitude as in carbon stock change estimates in other land use, land-use change and forestry (LULUCF) categories, and in N2O emissions from agricultural soils. Uncertainties in sink estimates of 1990 were lower, due to better availability of data. Results of this study indicate that inclusion of the forest carbon sink to GHG inventories reported to the UNFCCC increases uncertainties in net emissions notably. However, the decrease in precision is accompanied by an increase in the accuracy of the overall net GHG emissions due to improved completeness of the inventory. The results of this study can be utilised when planning future GHG mitigation protocols and emission trading schemes and when analysing environmental benefits of climate conventions.

Comment faut-il distribuer les quotas échangeables de gaz à effet de serre ?

How Should Greenhouse Gas Tra- dable Allowances be Allocated? The current revision of the European Union greenhouse gas emission trading system, in place since 2005, should modify the way allowances are distributed. We compare two distribution methods: a lump-sum allocation, based solely on past information, and an allocation porportional to the current output level. We identify the pros and cons of each allocation method and conclude that it is essential to distinguish the sectors sheltered from international competition, like power generation, from the exposed sectors. In the sheltered sectors, the allocation proportional to the current output level entails a much higher cost, and lump-sum allocation is unfair. Hence we favour auctioning, which does not suffer from these drawbacks. However, in exposed sectors, the allocation proportional to the current output level is an option worth considering.

Price determination of ETS allowances through the switching level of coal and gas in the power sector

This paper discusses the opportunities that exist for reducing greenhouse gases (GHG) emissions by switching from coal to gas-fired units in electricity generation, ‘forced’ by the European Union Greenhouse Gas Emission Trading Scheme (EU ETS) price level of CO2. It attempts to find efficient GHG cost profiles leading to a reasonable GHG emission reduction. In a methodological demonstration case (an electricity generation system consisting of two coal and two gas-fired power plants), we demonstrate how a GHG emission cost can lead to a certain switch of power plants with an accompanying GHG emission reduction. This GHG emission cost is dependent on the load level. The switching point method is applied to an electricity generation system similar to the Belgian one. It is found that the greatest opportunities for GHG emission reductions are situated in the summer season. By switching only the coal-fired units with the combined cycle (CC) gas-fired units, a significant GHG emission reduction is possible at a modest cost. With the simulation tool E-Simulate, the effect of a GHG emission cost in the summer season is investigated. A potential GHG emission reduction of 9.5% in relation to the case where there is no cost linked to GHG emission is possible at a relative low cost. When implementing a GHG cost in winter season, a smaller GHG reduction occurs while costs are higher. Copyright © 2006 John Wiley & Sons, Ltd.

Simulating greenhouse gas (GHG) allowance cost and GHG emission reduction in Western Europe

Due to the growing concern for global warming, the EU25 have implemented the European Union Greenhouse Gas Emission Trading Scheme (EU ETS). In the first trading period (2005–2007), part of the targeted GHG emission reductions presumably will have to result from a switch from coal fired electricity generation to gas fired electricity generation. It is possible to calculate the allowance cost necessary to switch a certain coal fired plant with a certain gas fired plant in the merit order. The allowance cost obtained is a so called switching point. When comparing historic European Union Allowance (EUA) prices (2005) with the corresponding historic switching points, the EUA prices were found high enough to cause a certain switch in the summer season. This finding leads to the use of switching points in establishing allowance cost profiles for several scenarios. A variable gas price profile is used in the simulation tool E-Simulate to simulate electricity generation and related GHG emissions in an eight zonal model representing Western Europe. Several GHG allowance cost profile scenarios are examined. For each scenario, electricity generation in the considered countries is clarified. The focus however lies on the GHG emission reduction potentials. These potentials are addressed for each scenario.

Emissions Trading in the United Kingdom: The Greenhouse Gas Emissions Trading Scheme (Amendment) and National Emissions Inventory Regulations 2005 and the Greenhouse Gas Emissions Trading Regulations 2005

Emissions Trading in the United Kingdom: The Greenhouse Gas Emissions Trading Scheme (Amendment) and National Emissions Inventory Regulations 2005 and the Greenhouse Gas Emissions Trading Regulations 2005

Greenhouse gas emission trading schemes: a new tool for the environmental regulator's kit

As the European Union greenhouse gas emission trading scheme (ETS) is emerging, it seems interesting to look back on previous experiments and to bring together a few elements of reflection about the pertinence of ETS as a new policy tool to regulate industrial pollution. So far, several regulatory tools have been used to decrease pollution. This article focuses on two of them, command-and-control (CAC) and ETS. There is no simple answer to which one is more efficient. It depends strongly on the context. Given a few elements outlined in this paper, the choice of an ETS to abate industrial emissions of greenhouse gases in the European Union (EU) can be considered pertinent. But, ultimately, what makes a scheme environmentally efficient is not the tool in itself (ETS or CAC) but the ambition of the target. Hence the design of the National Allocation Plans setting the emission caps are of paramount importance. They will make the EU ETS either a useless mess or an effective climate change mitigation policy tool.

The evolution of emissions trading in the EU: tensions between national trading schemes and the proposed EU directive

The EU is pioneering the development of greenhouse gas emissions trading, but there is a tension between the ‘top-down’ and ‘bottom-up’ evolution of trading schemes. While the Commission is introducing a European emissions trading scheme (EU ETS) in 2005, several member states have already introduced negotiated agreements that include trading arrangements. Typically, these national schemes have a wider scope than the proposed EU directive and allow firms to use relative rather than absolute targets. The coexistence of ‘top-down’ and ‘bottom-up’ trading schemes may create some complex problems of policy interaction. This paper explores the potential interactions between the EU ETS and the negotiated agreements in France and UK and uses these to illustrate some important generic issues. The paper first describes the proposed EU directive, outlines the UK and French policies and compares their main features to the EU ETS. It then discusses how the national and European policies may interact in practice. Four issues are highlighted, namely, double regulation, double counting of emission reductions, equivalence of effort and linking trading schemes. The paper concludes with some recommendations for the future development of UK and French climate policy.

Absolute versus intensity-based emission caps

Cap-and-trade systems limit emissions to some pre-specified absolute quantity. Intensity-based limits, that restrict emissions to some pre-specified rate relative to input or output, are much more widely used in environmental regulation and have gained attention recently within the context of greenhouse gas (GHG) emissions trading. In this paper we provide a non-technical introduction to the differences between these two forms of emission limits. Our aim is not to advocate either form, but to elucidate the properties of each in a world where future emissions and GDP are not known with certainty. We argue that the two forms have identical effects in a world where future emissions and economic output (i.e. GDP) are known with certainty, and show that outcomes for marginal costs, abatement, emissions and welfare diverge only because of the variance of actual future GDP relative to its forecast expectation.

Abatement Costs vs. Compliance Costs in Multi-period
 Emissions Trading - The Firms' Perspective

Greenhouse gas emission trading has become more and more important in the context of climate change. Recently, a discussion on trading on entity (i.e. company) level has started. Emitters likely to be obliged to participate have argued for an initial allocation of the emission rights free of charge. I analyse the implication of such an allocation based on historical emissions and on benchmarks in multi-period emission trading. Different allocation rules for successive periods are applied, namely allocations with reference figures that are either constant or that change over time. The analysis is carried out using a two-player, two-period model. I find that - depending on their marginal abatement cost - participants have different preferences with regard to the allocation method over time as individual compliance cost can change, too. Total costs remain, however, unaffected by the individual allocations as emissions are reduced where abatement is cheapest. Furthermore, I show that, depending on the allocation method, incentives exist to increase emissions in one period in order to get more emission rights in a subsequent period.

Strategic Aspects of Co2-Emissions Trading: Theoretical Concepts and Empirical Findings

This paper investigates the strategic challenges for companies arising from the EU-wide greenhouse gas emission trading system (EU-ETS). Tools are suggested to help companies develop synchronised abatement and trading strategies in their dynamic decision making and facilitate overall cost-minimising behaviour. Furthermore, an EU-ETS simulation game is presented, which has recently been carried out in Germany, and which combines the advantages of a field experiment and a controlled laboratory experiment. The results of the game suggest that the proposed trading system will not automatically result in the expected cost savings. Different factors can be identified as the causes, such as specific design parameters of the EU-ETS, participants' lack of experience with a new instrument, their lack of trust in the market mechanism and risk aversion. The simulation results stress the need for companies to acquaint themselves with the rules and the range of possible strategies.

Facing the new dawn: The EU Greenhouse Gas Emissions Trading Directive and UK climate policy

Facing the new dawn: The EU Greenhouse Gas Emissions Trading Directive and UK climate policy

Can the Czech Republic Participate in Greenhouse Gas Emission Trading?

The aim of this case study is to answer the question whether in the next decade and longer term the Czech Republic can participate in greenhouse gas emission trading. We analysed the position of the Czech Republic, especially with respect to one of the most discussed international agreements in this field, the Kyoto Protocol. Carbon, which is considered here primarily as the main source of energy so that it can be discussed later as the main component of greenhouse gases, is the main "binding material" of all the parts of the presented paper. The study starts with the current economic and environmental situation in the Czech Republic in its first chapter. The second part focuses on the energy sector – the main source of greenhouse gas emissions – from the point of view of fossil energy sources as well as renewable energy sources. The third chapter offers a comprehensive national greenhouse gas inventory which allows us in the following chapter to make some predictions about the Czech Republic's potential for intangible carbon flows – emission permits trading. This chapter contains projections not only for the Kyoto Protocol term (2008–2012) but also for medium (2020) and longer terms (2030). Besides the emission projections the description of possible future developments in government strategy, with respect to emission trading, has been outlined in this section. Through such a procedure the main research question, whether the Czech Republic can participate in greenhouse gas emission trading in the next decade, is answered in the affirmative for the period 2008–2012 and the potential for joint implementation and emission trading is quantified. At the end of this study we also raised some broader research questions about problems connected with the future development of an emission trading system after 2012.

Implications of Linking National Emission Trading Schemes prior to the Start of the First Commitment Period of the Kyoto Protocol

After greenhouse gas emission trading on country level had been proposed by the Kyoto Protocol agreed on in 1997, a discussion on the introduction of national schemes with entities as participants ensued. This discussion also raised the question if and how such systems can be linked. We first discuss this issue with regard to technical feasibility and environmental integrity. We find that linking is generally not prevented due to technical reasons. Environmental integrity may, however, be endangered depending on the specific designs of the schemes to be linked. We then analyse the economic impact of linking national schemes. Even though linking national schemes can increase overall cost-efficiency this picture changes if systems are linked prior to the start of the first Kyoto commitment period. Seller and buyer may have different interests with regard to linkage and the transfer of AAUs (= emission rights under the Protocol). Voluntarily linking can thus not be expected. In case that the linkage is prescribed by super-national organisations as for example the EU commission, both winners and losers are likely to be produced. This in turn may refrain member states from approving such approaches.

Buyer Liability and Voluntary Inspections in International Greenhouse Gas Emissions Trading: A Laboratory Study

This paper reports a preliminary laboratory experiment in which traders make investments to increase the reliability of tradable instruments that represent greenhouse gas emissions allowances. In one half of the sessions these investments are unobservable, while in the other half traders can invite costless and accurate inspections that make reliability investments public. We implement a buyer liability rule, so that if emissions reductions are unreliable (i.e., sellers default), the buyer of the allowances cannot redeem them to cover emissions. We find that allowing inspections significantly increases the reliability investment rate and overall efficiency. Prices of uninspected allowances usually trade at a substantial discount due to the buyer liability rule, which provides a strong market incentive for sellers to invest in reliability.

The EU emissions trading scheme (ETS): how linked to JI/CDM?

The paper first argues that the Directive for EU-wide greenhouse gas emission trading still carries a number of weaknesses, such as: • still no clear link with other climate policies in the Member States; • the subsidiarity with regard to the allocation of allowances may distort intra-EU competition; • lack of clarity as to what the (future) scope and coverage of the scheme may look like. Then, it is argued that not convincingly linking the scheme to the flexibility instruments of the Kyoto Protocol, JI and CDM, or establishing such a link only later or based on some supplementarity rule, not only carries a number of risks, but may also be circumvented by the Member States using their freedom with regard to their national climate policy design.

Saskatchewan forest carbon sequestration project

In 2002 a project in Saskatchewan became the first forest carbon (C) sequestration project to be formally reviewed and approved in Canada under the Greenhouse Gas Emission Trading (GERT) Pilot. GERT concluded that the project will result in real, measurable, verifiable and surplus net sequestration, calculated as C stock changes in the with-project case less C stock changes in the reference (without project) case. The project is a 50-year agreement (2000–2050) in which Saskatchewan Environment sells net C sequestration to the provincial electrical utility Saskatchewan Power Corporation. Net sequestration of 1.6 Mt C is expected to result from the establishment of white spruce plantations on 3300 ha and from forest protection through creation of 206 000 ha of Forest Carbon Reserves. Issues that arose in the review included leakage, the permanence of the sequestered carbon and risk of losses, establishment of the reference case, methodologies for projections of impacts, approaches for sampling and measurements, and accounting methods. GERT established a number of reporting and other conditions to be fulfilled when estimates of actual net sequestration are registered. Future forest C sequestration projects, project reviews and policy development will be able to draw upon the lessons learned from the Saskatchewan project. Key words: carbon sequestration, carbon sequestration projects, Saskatchewan, Greenhouse Gas Emission Reduction Trading Pilot, plantations, forest protection, leakage, permanence, carbon accounting, carbon measurement

Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences

The European Commission (document COM (2001) 581) has recently presented a directive proposal to the European Parliament and Council in order to implement a greenhouse gas emission trading scheme. If this proposal survives the policy process, it will create the most ambitious trading system ever implemented. However, the legislative process is an opportunity for various interest groups to amend environmental policies, which as a result generally deviate further from what economic literature proposes. A close look at implemented emission trading schemes, stressing their discrepancies with economic literature requests, is thus useful to increase the chances of forthcoming emission trading schemes to go through the political process. We thus review ten emission trading systems, which are either implemented or at an advanced stage of the policy process. We draw attention to major points to be aware of when designing an emission trading system: sectoral and spatial coverage, permits allocation, temporal flexibility, trading organisation, monitoring, enforcement, compliance, and the harmonisation vs. subsidiarity issue. The aim is to evaluate how far experiences in emission trading move away from theory and why. We then provide some lessons and recommendations on how to implement a greenhouse gas emission trading program in Europe. We identify some pros of the Commission proposal (spatial and sectoral coverage, temporal flexibility, trading organisation, compliance rules), some potential drawbacks (allocation rules, monitoring and enforcement) and items on which further guidance is needed (monitoring and allocation rules). Lastly, the European Commission should devote prominent attention to the US NO X Ozone Transport Commission budget program, as the only example of integration between the federal and state levels.

Pathways to European Greenhouse Gas Emissions Trading History and Misconceptions

We develop and discuss the three pathways to European Greenhouse Gas Emissions Trading: a top-down scheme based on the Kyoto Protocol of the UNFCCC, a bottom-up scheme linking national trading systems of EU Member States, and an EU-wide regional scheme based on the founding principles of the European Union. We review how the debate on greenhouse gas emissions trading has evolved in Europe since the adoption of the Kyoto Protocol in 1997 in three phases. We also review a set of influential misconceptions in the European discussion concerning emissions trading and, while dispelling them, try to establish why such misconceptions have arisen.

Implementing Greenhouse Gas Trading in Europe: Lessons from Economic Theory and International Experiences

The European Commission (2001a) has recently presented a directive proposal to the Parliament and the Council in order to implement a tradable permits scheme. However, as stressed by the positive political economy, due to the influence of various interest groups, very few environmental policies are implemented in their textbook forms. A close look at implemented emission trading schemes, stressing their discrepancies with textbook requests, is thus useful to increase the chances of forthcoming emission trading schemes to go through the political process without being watered down. We thus review ten emission trading systems, that are either implemented or at an advanced stage of the policy process. We draw attention to major points to be aware of when designing an emission trading system: participants, spatial coverage, permits allocation, temporal flexibility, trading organisation, monitoring, enforcement, compliance, and the harmonisation vs. subsidiarity issue. The aim is to evaluate how far experiences in emission trading move away from theory and why. We then provide some lessons and recommendations on how to implement a greenhouse gas emission trading program in Europe. A review of the theoretical and applied literature, and some interviews, lead us to the assessment of the European system.

The Norwegian Approach to Greenhouse Gas Emissions Trading

The Norwegian Approach to Greenhouse Gas Emissions Trading