Assessing the performance of the UK Emissions Trading Scheme

Abstract

The UK’s Climate Change Programme introduced an Emissions Trading Scheme (ETS) for greenhouse gases. Firms in over 40 industrial sectors which have negotiated “Climate Change Agreements” setting quantitative energy efficiency targets can use the ETS to trade over-and under-compliance with these targets. In parallel, a limited number of firms have become major participants in the ETS as a result of an auction of subsidies for additional abatement commitments. The paper describes the UK arrangements and assesses the economic efficiency and environmental effectiveness of the ETS, drawing on evidence of participants’ behaviour both in the incentive auction, and in subsequent trading. Copyright Springer Science+Business Media, Inc. 2007Emissions trading, Tradeable permits, Auctions, Market efficiency, Greenhouse gas abatement, Climate change policies,

The Impacts of the Climate Change Levy on Manufacturing: Evidence from Microdata

“…It seems very likely that this is the consequence of an overly generous cap. Neither previous research (Cambridge Econometrics, 2005;Ekins and Etheridge, 2006) nor our own shows any evidence that the targets negotiated under the CCA were very stringent, and the consistently low carbon prices in the UK ETS documented by Smith and Swierzbinski (2007) are in line with this as well. Rather than proving that a cap-and-trade system cannot establish meaningful prices for carbon, the UK experience demonstrates that a cap must put binding constraints on energy use to deliver real emissions reductions.…”

“…Target units were allowed to call upon several 'risk management tools' that made it easier to meet their targets. Ex-post adjustments to targets could be made to reflect a more energy intensive product mix, declining output (if minimum energy use was spread over fewer units), or 'relevant constraints' arising from other types of 12 Smith and Swierzbinski (2007) regulation. In some sectors, performance was measured against a 'tolerance band' in lieu of a fixed target.…”

The Best (and Worst) of GHG Emission Trading Systems: Comparing the EU ETS with Its Followers

“…This is not to say that auctioning is the panacea for all problems. Difficulties can arise also in the auctioning design, as is well documented in the ETS literature (e.g., Cramton and Kerr, 2002;Smith and Swierzbinski, 2007). In our opinion, however, setting a clear time plan for the progressive introduction of auctioning can provide an important and credible signal that the new ETS is here to stay, which may induce firms to make plans and investments in eco-innovation in due time.…”

Electricity generation

“…Smith et al (2007) observed that during the implementation of a CO 2 cap and trade system in the United Kingdom, firms tended to have significant reductions at the start of the two year cycle; however, excess CO 2 credits were available at the end of the cycle, allowing for more generation from carbon intensive fuel sources. Second, concern exists about the creation of pollution hotspots (areas in which locally increased emissions at facilities with increased generation under a program worsens air quality in those locations).…”