EU-ETS Phase IV: allowance prices, design choices and the market stability reserve

Perino, Grischa; Willner, Maximilian

doi:10.1080/14693062.2017.1360173

Cited by 75 publications

(50 citation statements)

References 20 publications

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“…the end of Phase IV. Also, Perino and Willner (2017) argue that postponing permit auction using the MSR only increases short-term scarcity but lowers long-term prices. Finally, governments are implementing abatement subsidies and other renewable energy policies (Löfgren, Wråke, Hagberg, & Roth, 2014), partly due to the EU-20-20-20 strategy and lack of adoption of green technologies (see section 4.5).…”

Section: Hypothesis No 2: Over-allocationmentioning

confidence: 99%

Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature

2018

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Environmental policies may have important consequences for firms' competitiveness or profitability. For the European Union Emissions Trading System (EU ETS) the empirical literature documents that significant emissions reductions have resulted from it. Surprisingly, however, the literature shows that there have been hardly any concurrent negative effects on firms' competitiveness during the first two phases of the scheme (2005-2012). We show that the main explanations for the absence of negative impacts on competitiveness are a large over-allocation of emissions allowances leading to a price drop and the ability of firms to pass costs onto consumers in some sectors. Cost pass-through combined with free allocation, in turn, partly generated windfall profits. In addition, the relatively low importance of energy costs indicated by their average share in the budgets of most manufacturing industries may have limited the impact of the EU ETS. Finally, small but significant stimulating effects on innovation have been found so far. Several factors suggest that over-allocation is likely to remain substantial in the upcoming periods of the scheme. Therefore, we expect to see no negative competitiveness effects from the EU ETS in Phases III and IV (2013-2030). Key policy insights. Empirical literature on the EU ETS shows that there have been hardly any effects on firms' competitiveness or profitability.. One main explanation is a large over-allocation of emissions allowances leading to a price drop. This reduced incentives for innovation.. Moreover, firms were able to pass costs on to consumers in some sectors which partly generated windfall profits.. Innovation effects have so far been small but positive.. We expect to see no negative competitiveness effects on regulated firms in the near future suggesting that no further reliefs for regulated firms are required.

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Section: Hypothesis No 2: Over-allocationmentioning

confidence: 99%

Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature

2018

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“…Limiting the return of allowances to the market was also necessary to reduce price volatility and achieve a sustained increase of the carbon price. 69 The ETS Directive also aims to reduce excessive price fluctuations by making it possible to release allowances from the reserve. However, this mechanism does not aim at mitigating the structural price issue, as it can only be used for price evolutions that 'do not correspond to changing market fundamentals'.…”

Section: Managing Supply: the Market Stability Reservementioning

confidence: 99%

Fixing the emissions trading scheme: Carbon price stability in the EU and China

Boute¹,

Zhang²

2019

European Law Journal

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This paper critically questions the legal and economic foundation of price regulation in environmental markets, with a focus on the European Union (EU) and Chinese Emissions Trading Schemes (ETSs). In 2018, the EU adopted a structural reform of its own ETS with the objective of increasing and stabilising carbon prices. This reform raises fundamental questions concerning the free market nature of the ETS and its function as a driver of low‐carbon investments. On the one hand, regulatory adjustments are necessary to address the large surplus of allowances that can result from exogenous shocks (e.g. economic downturn). On the other hand, the risk of regulatory intervention in the market undermines investor certainty. In China, limited regulatory independence and more stringent government control over the market exacerbates the threat posed by price control measures to the integrity of China's ETS and its role as a driver of investments in environmental protection.

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“…The Regional Greenhouse Gas Initiative (RGGI) in the United States also experienced over-allocation because emissions from the power sector have declined by more than 40% across the RGGI region since 2005 owing to energy efficiency programmes and a shift of generation from coal and oil to renewable power and natural gas (Snyder, 2014). Thus, new mechanisms were used to deal with the problem of over-supply, such as a Market Stability Reserve in the EU ETS (Perino & Willner, 2017) and Cost Containment Reserve in RGGI (Hasegawa & Salant, 2014).…”

Section: Top-down Approachmentioning

confidence: 99%

China’s national emissions trading scheme: integrating cap, coverage and allocation

Cheng

2018

Climate Policy

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China is expected to launch its national emissions trading scheme (ETS) in 2017. When designing an ETS, the cap, coverage and allocation are three key elements that must be considered. In general, three approaches are used to determine a scheme's cap, coverage and allocation when considering whether a cap should be set and the method of setting a cap, namely, no-cap, top-down and bottom-up approaches. However, as a multi-tiered ETS established in an emerging economy, China's national ETS faces special economic, technical and bargaining cost issues. To address these special issues, a unique approach, which is different from general approaches in theory and in major global ETSs, has been used in China's national ETS to integrate its cap, coverage and allocation. Based on a comparative analysis of general approaches in theory and practice, this article provides a detailed introduction to the method for integrating the cap, coverage and allocation in China's national ETS. It further reveals three challenges behind this unique approach and puts forward relevant policy suggestions. Key policy insights. As a multi-tiered ETS established in an emerging economy, China's national ETS faces special economic, technical and bargaining cost issues.. The general approaches (i.e. no-cap, top-down and bottom-up approaches) to determine a scheme's cap, coverage and allocation cannot completely address the special issues in China's national ETS.. China's national ETS uses a unique approach combining top-down and bottom-up methods to integrate its cap, coverage and allocation.. Three challenges remain behind this approach: the harmonization of local differences and national unified rules, the independent selection of covered sectors by local governments and the rationality underlying the selected allocation method.

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EU-ETS Phase IV: allowance prices, design choices and the market stability reserve

Cited by 75 publications

References 20 publications

Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature

Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature

Fixing the emissions trading scheme: Carbon price stability in the EU and China

China’s national emissions trading scheme: integrating cap, coverage and allocation

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