Assessing Emission Allocation in Europe: An Interactive Simulation Approach

Energy Journal 01/2004; 26. DOI: 10.2139/ssrn.560881
Source: RePEc


Implementation of an EU-wide emissions trading system by means of National Allocation Plans is at the core of European environmental policy agenda. Member States are faced with the problem of allocating their national emission budgets under the EU Burden Sharing Agreement between energy-intensive sectors that are eligible for international emissions trading and the remaining segments of their economies that will be subject to complementary domestic emission regulation. The country-specific segmentation of national emission budgets between trading sectors and non-trading sectors will determine the cost efficiency of the EU emissions trading system and the gains for each Member State vis-?-vis domestic abatement policies. We present an interactive simulation model where users can specify the design of National Allocation Plans for each EU Member State and then evaluate the induced economic effects. Our numerical framework is based on marginal abatement cost curves for (emissions) trading and non-trading sectors of the EU-15 economies. Illustrative simulations highlight the importance of a coordinated design of National Allocation Plans in order to avoid substantial excess costs of regulation and drastic burden shifting between nontrading and trading sectors.

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    • "The segmentation of emission regulation into one EU-wide ETS market and multiple national non-ETS markets has given rise to concerns on adverse implications for cost-effectiveness of EU emission abatement: While the allocation of emission allowances across sources would not matter for cost-effectiveness in the case of comprehensive trading, it may induce substantial additional costs of emission abatement in the case of unlinked markets should the regulator not be able or willing to choose the cost-effective split of the emission budget between ETS and non-ETS segments (see e.g. Böhringer et al., 2005). 2 Even in the case of perfect planner information the segmentation of regional emissions into an international ETS market and unconnected non-ETS markets can have adverse efficiency implications as regions obtain incentives to manipulate emission prices through strategic 1 For example, RGGI and WCI in the USA, GGAS in Australia, or JVETS in Japan (for an overview see Schüle and Sterk, 2009). "
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