Intra- and extra-union flexibility in meeting the European Union's emission reduction targets

Tol, Richard S J (2009) Intra- and extra-union flexibility in meeting the European Union's emission reduction targets. Energy Policy, 37 (11). pp. 4329-4336. ISSN 0301-4215

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Abstract

The EU has proposed four flexibility mechanisms for the regulation of greenhouse gas emissions in the period 2013-2020: (1) the Emissions Trade Scheme (ETS), a permit market between selected companies; (2) trade in non-ETS allotments between Member States; (3) the Clean Development Mechanism (CDM) to purchase offsets in developing countries; and (4) trade in CDM warrants between Member States. This paper shows that aggregate abatement costs fall as flexibility increases. However, limited flexibility creates rents so that increasing flexibility raises costs in some Member States. Costs are reduced more by the CDM than by non-ETS trade. The CDM warrants market reduces costs by a small amount only; market power is a real issue. However, the warrants market is obsolete in case there is non-ETS trade. The CDM leads to price convergence between the ETS and non-ETS market. There would be one price for carbon in the European Union if the proposed limits on CDM access are relaxed slightly.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences > GE300 Environmental management
H Social Sciences > HB Economic theory. Demography
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Depositing User: Richard Tol
Date Deposited: 19 Apr 2012 08:28
Last Modified: 19 Apr 2012 08:28
URI: http://sro.sussex.ac.uk/id/eprint/38263
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