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Emissions trading schemes (ETS) have spread across the globe to tackle climate change. However, limited attention has been given to how ETS characteristics and designs differ and why. We use the concept of institutional complementarity to explore how the EU ETS and South Korea's ETS (K‐ETS) adapt to complement established political economy. The EU ETS is characterized as a market with stakeholder ownership, while the K‐ETS is more regulatory in nature with government leadership. The EU ETS complements a decentralized political system with liberalized energy market, and the K‐ETS became compatible with the centralized majoritarian politics and a regulated electricity market. The ETSs have evolved incrementally, and they are not likely to link in the foreseeable future due to divergence. We suggest a strong focus on "how to adapt" an ETS to its own institution rather than adopting the established blueprint model in countries with a strong regulatory style of governance. Related Articles: Caliskan, Cantay. 2020. "The Influence of Elite Networks on Green Policy Making." Politics & Policy 48(6): 1104–37. https://doi.org/10.1111/polp.12382. Tanaka, Yugo, Andrew Chapman, Tetsuo Tezuka, and Shigeki Sakurai. 2020. "Multiple Streams and Power Sector Policy Change: Evidence from the Feed‐In Tariff Policy Process in Japan." Politics & Policy 48(3): 464–89. https://doi.org/10.1111/polp.12357. von Malmborg, Fredrik. 2023. "Combining the Advocacy Coalition Framework and Argumentative Discourse Analysis: The Case of the 'Energy Efficiency First' Principle in EU Energy and Climate Policy." Politics & Policy 51(2): 222–41. https://doi.org/10.1111/polp.12525. [ABSTRACT FROM AUTHOR]

With its European Green Deal and the new European Climate Law, the EU has given itself a daunting challenge and a legal obligation to achieve a net 55% reduction of greenhouse gases by 2030 and full climate neutrality by 2050. In order to do this, it has to figure out not only how but also where such large reductions can be made. While the EU has a robust mechanism in its regulatory toolbox for achieving emissions reductions in the form of its Emissions Trading System, at the present moment the ETS does not cover the agricultural sector, which currently amounts to a full 10% of its total greenhouse gas emissions. To date, the EU has been troublingly unsuccessful at effectively reducing its agricultural emissions, though, and this will need to change in order for it to meet its goals by 2030 and 2050. Although the European Commission has not (yet) announced any formal intention to include agriculture into the ETS, it is worth evaluating the prospect of it doing so given the urgency of the present moment and the pressure on the EU to carefully consider any emissions reduction option that is available to it. This paper, therefore, contributes to this discussion by assessing the legal prospect of incorporating the EU's agricultural sector into its ETS. Its primary argument is that while doing so will require complex economic calculations along with some difficult political decision-making, from a legal perspective it would be very feasible and could even bring a number of regulatory and policy 'win-wins' in its wake. The EU's broader legal framework would be quite permissive of it if it does not upset the internal marketplace, and finding the right way to do it could bring the EU's emissions reduction, agricultural and environmental policy goals into closer alignment in ways that its current policy and regulatory frames do not. Furthermore, the ETS was intentionally designed to be a flexible mechanism and it has already demonstrated its ability to be re-tooled to address different economic sectors and new gases, and there is little indication that modifying it to apply to agricultural emissions would be beyond its capacity. [ABSTRACT FROM AUTHOR]

Environmental policy in the European Union is a hot topic for both practitioners and researchers. Their interests are attracted mainly by the main tool of this policy—emissions trading within the EU ETS. In literature focusing on the impacts of the EU ETS, the EU is usually considered to be a compact unit and its structure is omitted there. In particular, the impacts on a single company (regardless its geographical location), on a sector of industry (regardless the member countries), or on some subset of the involved companies with respect to non-EU competitors are often explored. However, through the eyes of national governments, it is vital for the countries to keep their national industrial sectors competitive not only against companies from countries outside the EU but also from other EU countries. This paper focuses on the influence of the EU ETS on the national steel sectors in the EU and their competitiveness. The hybrid PROMETHEE-DEA approach is used to assess how the price of emission allowance and grandfathering within the EU ETS impact the technical efficiency and competitiveness of these national sectors. The results of this study show that the volatile allowance price influences the efficiency and grandfathering affects the competitiveness of the EU national steel sectors. [ABSTRACT FROM AUTHOR]

The literature on policy dynamics has long argued for a better conceptualization and measurement of the dependent variable ("policy"), but this fundamental point has often been neglected in the policy feedback literature. In this paper, we explore how far disaggregating policy into different elements (policy instruments, objectives, and settings) addresses this gap. We do so by examining the world's largest market-based climate policy instrument—emissions trading in the European Union—and reveal a number of valuable new insights. First, even if positive policy feedback locks in a policy instrument, actor contestation does not disappear, but narrows down to the more detailed level of policy settings. Second, feedback may operate differently at each policy level: the policy instrument and its settings may strengthen at the same time as support for broader objectives weakens. Finally, positive feedback may simultaneously strengthen opposing actors' support for multiple policy elements, leading to a form of "policy stability by stalemate." These findings highlight the need for a new, interdisciplinary phase of policy feedback research that more fully disaggregates the dependent variable across a wider range of policy areas and policy instrument types. Policy scientists are well equipped to contribute to and benefit from such a debate. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

In this study, we analyze the price dynamics of carbon certificates that are traded under the European Union's Emissions Trading System (EU-ETS). With the aim of investigating the joint relations among carbon, electricity, and fuel prices, we model historical prices using several methods and incorporating structural changes, such as econometric time series, regime switching, and multivariate vector autoregression models. We compare the results of the structural model with the results of traditional Markov switching and autoregressive models with breaks and present performance analysis based on the mean average percentage error, root mean squared error, and coefficient of determination. According to these performance tests, models with regimes outperform the approaches where breaks are defined using ex ante dummy variables. Moreover, we conclude that among regime switching models, univariate models are better than multivariate counterparts for modeling carbon price series for the analysis of both in-sample and out-of-samples. [ABSTRACT FROM AUTHOR]

The European-Union Emissions Trading System (EU-ETS) is a cap and trade scheme that requires the industries participating in the program to obtain allowances to cover their carbon emissions. Energy Intensive Industries claim that this system puts their European plants at an economics disadvantage compared to facilities located outside the EU. As a direct consequence, industries may relocate their production activities in unregulated countries, leading to the so-called carbon leakage effect. In order to curb this effect, several policies have been devised, including grandfathering of CO 2 allowances and border tax adjustment. This paper investigates the impact of these two policies on the cement sector, with a particular focus on the Italian market, particularly prone to carbon leakage. The analysis is based on an oligopolistic partial equilibrium model with a detailed technological representation of the market. The model is a Generalized Nash Equilibrium Problem that accounts for the interactions of cement companies. Simulations show that neither the grandfathering nor the border tax adjustment fully solve the carbon leakage problem because cement companies modify their cement and clinker trade strategies according to the measure applied in order to avoid or reduce their carbon costs. [ABSTRACT FROM AUTHOR]

Since the beginning of the millennium, heavy industrial companies in the EU must face the threat related to duty of emissions trading. The aim of this paper is to assess an impact of selected indicators of the emissions trading system (EU ETS) - number of grandfathered permits (allowances) to a company for free and emissions price for different type of permits. That is enabled by the parameterization and sensitivity analysis of the simple linear programming model which maximizes the total profit margin of the company. Analyses in this paper are performed using the data of one real iron and steel producing company in the Czech Republic. The influence of the chosen factors is explored for the second and the available part of the third trading phase of the EU ETS. [ABSTRACT FROM AUTHOR]

The article focuses on China's plan to launch a national emissions trading scheme (ETS). Topics discussed include the possibility that China will seek to link its ETS with other ETS schemes, the various forms of linkage and their different effects, and signs that China and the European Union are very likely to cooperate in the field of emissions trading.

There is a broad consensus on the contribution of the so-called eco-innovations to the sustainability transition of economic activity and on the power of policy instruments to redirect innovation towards solving environmental challenges over time. However, despite remarkable academic efforts in this direction, there is a shortage of studies empirically analysing the link between environmental policy and innovation activities. Using firm-level data gathered from the Community Innovation Surveys of two specific years, 2008 and 2014, from eleven European countries, we apply a difference-in-difference approach to provide a clear-cut test of the effects of Phase III of the EU's Emissions Trading System on low-carbon innovations of energy-intensive firms. Our results suggest that environmental policy may affect firms' environmental performance by improving eco-innovating efforts. In fact, the new environmental policy not only induced an adaptive response , in which firms adjust their level of emissions to this new cost scheme, it also induced a creative response , leading companies to move outside of the range of their existing practices. [ABSTRACT FROM AUTHOR]

In 2005, the world's largest Emissions Trading System (ETS) was introduced in the EU. Economic theory assumes high efficiency of such market-based instruments since companies have the flexibility to trade allowances. However, to date there is a lack of understanding on how companies have participated in the allowance markets. This article uses data on transfers of allowances between 2005 and the end of 2007, published by the EU in the Community Independent Transaction Log (CITL) after a five-year delay. We use cluster analysis to detect patterns in the data and differentiate transfer behaviour. We find that the vast majority of participants (7212 accounts) are rather passive in terms of transfers. Of these, more than half are hardly participating in the market at all, whereas one-third are accounts managed by another account belonging to the parent company. Opposed to that, 143 accounts show more active, but relatively diverse transfer behaviour. We also identify differences in sectoral representations, account types, and primary allocation across the seven clusters. While the passive accounts mostly belong to installations regulated under the EU ETS, the most active accounts are classified as ‘non-regulated account type'. Our findings have implications for policy makers in the EU as well as other countries that have or are setting up an ETS. The high number of companies not or hardly participating in the allowance market despite being regulated under the EU ETS puts the theoretical praised economic efficiency of this instrument in question. This finding also implies that policy makers should reconsider the entry thresholds for firms into an ETS. At the same time, some of the most active accounts belong to non-regulated firms, such as banks, which calls for better market oversight or potentially restrictions on ETS participation. Finally, we recommend that the timeliness and user-friendliness of CITL should be increased. [ABSTRACT FROM AUTHOR]

Since the crash of carbon prices in phase II of the European Union Emissions Trading System (EU ETS), many have argued that the low price mirrors structural failures requiring intervention. A wide range of reform options have been suggested, including delegating the governance of the carbon market to an independent authority. This article analyses the debate by reconstructing the various arguments for or against reform. Three possible drivers of the price decline are investigated: (1) exogenous shocks; (2) insufficient credibility; and (3) market imperfections. It is argued that the extent to which a low price is problematic and warrants reform depends on the specific objectives associated with the EU ETS and the perception on the functioning of the market. A two-dimensional EU ETS Reform Space, comprising the degree of price certainty within the EU ETS and the level of delegation, is devised. Within the Reform Space, EU ETS reform options currently discussed are mapped. This descriptive structure offers a framework to clarify whether delegation responds to various concerns with respect to the EU ETS. Delegation might enhance flexibility under unforeseen circumstances, decrease policy uncertainty, and increase the credibility of long-term policy commitments. However, higher degrees of delegation face challenges including democratic legitimacy and political feasibility. Policy relevance In January 2014, the European Commission proposed a structural reform of the EU ETS characterized by a quantity triggered Market Stability Reserve, increasing flexibility in allowance supply. However, intense debate has revealed considerable differences in opinion regarding the need for and objectives of any adjustment mechanism. Other proposals, including various degrees of delegation to a rule-based adjustment mechanism or an independent authority as well as degrees of price certainty, were also suggested. This article offers a new framework, the EU ETS Reform Space, to compare reform options more systematically. This work therefore contributes to structuring the policy debate by providing a tool to better understand the merits and demerits of various reform proposals [ABSTRACT FROM PUBLISHER]

One of the stated aims of the EU ETS is to promote investment in clean, low-carbon technologies. Against this background, this paper aims to provide an original analysis of how the EU ETS has impacted on corporate investment decisions and whether it does so at a level adequate to reach the long-term political targets required for a decarbonization of the European economy. In this paper, the authors provide empirical evidence for this question by analyzing corporate reactions to the EU ETS for Belgian EU ETS sites. Despite the fact that most managers use prices that are much higher than spot prices in their appraisal reports, expected prices are still far too low to mobilize additional financing for new investments in lower carbon modes of production. [ABSTRACT FROM AUTHOR]

This paper analyzes the influence of ecological economics (EE) in the European Union (EU) political agenda, specifically the agenda-setting dynamics of the cap-and-trade (CAT) EE policy concept. We follow the model developed by Boezeman, Leroy, Maas, and Kruitwagen (2010), elaborating on the important factors for the rise of CAT in the EU political agenda, and on the EU emissions trading scheme (ETS) implementation issues. Although EE features are present in the EU political agenda, particularly in periods when international works and forums raised environmental awareness globally, its impact has been moderate and intermittent. Since the 80s, neoclassical economics views tend to dominate EU policy, furthering a "win-win" discourse between economic growth and environmental sustainability. More recently, climate change has rekindled EE concerns without shifting the prevailing paradigm. We conclude that EE did not influence significantly the rise of the CAT policy in the EU political agenda. Instead, this resulted from a combination of the political context around the Kyoto Protocol, the agency of EU actors and the CAT flexible framing among multiple stakeholders. Also, the EU ETS operationalization shows that political obstacles hindered the policy's success, suggesting that EE would benefit from further integrating in its theory political economy aspects. [ABSTRACT FROM AUTHOR]

The European Union Emissions Trading Scheme (EU ETS) is a cornerstone of the European Union's policy to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively. The purpose of the present work is to evaluate the influence of CO 2 opportunity cost on the Spanish wholesale electricity price. Our sample includes all Phase II of the EU ETS and the first year of Phase III implementation, from January 2008 to December 2013. A vector error correction model (VECM) is applied to estimate not only long-run equilibrium relations, but also short-run interactions between the electricity price and the fuel (natural gas and coal) and carbon prices. The four commodities prices are modeled as joint endogenous variables with air temperature and renewable energy as exogenous variables. We found a long-run relationship (cointegration) between electricity price, carbon price, and fuel prices. By estimating the dynamic pass-through of carbon price into electricity price for different periods of our sample, it is possible to observe the weakening of the link between carbon and electricity prices as a result from the collapse on CO 2 prices, therefore compromising the efficacy of the system to reach proposed environmental goals. This conclusion is in line with the need to shape new policies within the framework of the EU ETS that prevent excessive low prices for carbon over extended periods of time. [ABSTRACT FROM AUTHOR]

Research has shown that industrial firms and organisations engaged in lobbying during the making and revision of the European Union Emissions Trading System (EU ETS). However, little is known on how they went about lobbying. This article provides insight into industrial lobbying during the revision of the EU ETS by focusing on six industrial firms from Sweden and Norway, examining how and where they lobbied, and whether their lobbying was shaped by originating from an EU member state or not. The article finds that EU membership did influence how and where firms lobbied. Compared to Swedish firms, Norwegian firms lobbied less alone, via national associations and national institutions, and this limited Norwegian firms’ ability to lobby at the European level. [ABSTRACT FROM PUBLISHER]

The article presents charts, graphs, and tables showing the third phase of the European Union emissions trading scheme.

The distributional choices of the EU in three policy phases, spanning 20 years, are examined: the negotiations on emissions reduction targets for the EU15 under the first commitment period of the Kyoto Protocol, the negotiation of National Allocation Plans for Phase II of the EU Emissions Trading Scheme (ETS) between 2008 and 2012, and the formulation of the 2008 Climate and Energy Package for the period 2013–2020. A flexible and pragmatic framework, consisting of the normative principles of capacity, responsibility, equality, and need, is used to elucidate the indicators and policies used in deciding how the EU Member States are to share the cost of meeting climate policy objectives. The analysis extends the literature by applying a common analytical framework across the three different policy phases and provides a structured basis for the assessment of what the EU and other jurisdictions can learn from them. Policy relevance Distributing the cost of climate policy is a key policy concern, both at the domestic and international level. The EU has more than 20 years of policy experience with such distributional choices and is also preparing the next steps of its policy, where distributional choices will again be central. A framework is developed to assess the modalities and rationale for EU distributional choices in order to inform the future climate policy of the EU and other jurisdictions. [ABSTRACT FROM PUBLISHER]

Abstract: Following the introduction of the European Union Emissions Trading Scheme in 2005, the size of the carbon market has been growing at a tremendous rate. To meet the emissions reduction targets, the regulated parties can choose to participate in the allowance-based market by purchasing the spot allowances. Commencing in 2008, the regulated parties are also allowed to purchase the offset credits to meet their allowance limit. Given the risky nature of the offset credits, this paper evaluates the hedging performance of dynamic hedge ratios for the carbon offset credit (certified emissions reduction) market in the EU-ETS. To the best of our knowledge, this paper is the first attempt to evaluate the hedging performance of dynamic and constant hedge ratios in the carbon offset credit market. Based on the variance reduction and utility improvement measurements, the findings generally support the use of static hedge ratios over the more sophisticated, dynamic hedge ratios. [Copyright &y& Elsevier]

Greenhouse gas (GHG) reduction projects implemented at European Union Member States in non-Emissions Trading Scheme (ETS) sectors are referred to as domestic offset (DO) projects. The aim of this article is the presentation of DO projects implementation modalities, their interactions with subsidy programs and the analysis of impacts on their financial profile. This article argues that although DOs would not bring EU Member States closer to their Kyoto Protocol targets, they could enhance the roll-out of new low-carbon technologies which would result in extra energy and GHG reduction gains on top of the carbon credits that link DOs to the EU ETS. [ABSTRACT FROM AUTHOR]

Cap-and-trade schemes are of tremendous interest in the current trends of climate law and policy. Taking into account Phase I and Phase II, the EU ETS directive has been reformed in 2009 and will establish a totally new Phase III starting from 2013 until 2020. The new system will propose a broader material scope, new forms of allocation of allowances, due attention to benchmark free allowances and careful measures to address carbon leakage. Furthermore, the directive sets new forms of market oversight and opens up for stronger relations with other compatible systems. On the other side of the Atlantic, the lack of a US federal cap-and-trade system has not prevented the creation of sub-national or regional cap-and-trade schemes. The Californian cap-and-trade final regulation represents the most interesting and most advanced scheme in the US. It has been eventually adopted in fall 2011 and is designed to reduce GHG emissions by 2020 through a market-based compliance system. The two systems show improvements to earlier forms of emissions trading, but still raise questions on the actual compatibility between each other. [ABSTRACT FROM AUTHOR]

Linking a cap-and-trade with an offset mechanism has many theoretical advantages: it reduces compliance costs, extends the price signal outside the cap-and-trade, and triggers technology transfer. However, it is feared that such linking will induce outsourcing of emissions reduction at a low price and undermine the price incentive in the cap-and-trade. The EU Emissions Trading Scheme (EU ETS) is the first full-scale example of a cap-and-trade system linked to project-based mechanisms such that offsets have effectively been used by industrial installations. This article is an ex post analysis of EU ETS data for the years 2008 and 2009, and the characteristics of the link and its efficiency are evaluated. Although offsets have been much used, their use is concentrated and not very intense or frequent, which allays the fear that offsets will flood the market. Although the majority of surrendered CERs effectively come from the largest and oldest projects, the credits surrendered are similar to those available on the market. Possible factors that contribute towards inefficiency are the rules for using offsets, transaction costs affecting the participation of small installations, awareness and openness to market-based instruments, and uncertainties regarding CERs offer and demand from other markets. However, the impact on EUA equilibrium price still needs to be quantified. [ABSTRACT FROM PUBLISHER]

The aviation industry has been included in the EU’s emissions trading scheme (ETS) since 1 January 2012. Airlines now have to acquire and ‘surrender’ allowances for the carbon emissions produced by their flights. The scheme is comprehensive: it applies to EU and non-EU airlines (subject to a potential exemption), to passenger and cargo flights, and to flights between EU airports and between EU and non-EU airports. An airline that fails to surrender allowances is fined €100 per allowance and must make up the shortfall the following year. The EU’s scheme has already given rise to legal action in connection with the EU’s international civil aviation obligations. But, due to its impacts on trade in goods and services, the scheme also has implications for the EU’s obligations under WTO law: specifically, under the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS). Some of these issues are specific to this scheme, but in other respects they are connected with the current debate on the WTO legality of border carbon adjustments (BCAs). As this article shows, it is challenging to design a carbon scheme that is both administratively feasible and justifiable under WTO law. [ABSTRACT FROM PUBLISHER]

Abstract: This paper presents a mixed activity-based costing decision (MABCD) model for green airline fleet planning under the constraints of the European Union Emissions Trading Scheme (EU ETS), in which activity-based costing (ABC) model is incorporated with a modified product-mix decision model for total operating costs of individual flights under EU ETS constraints. A numerical example for comparing cost-effectiveness between the B747-400 airline and the A380 airline in one of the busiest route between Asia and Europe is demonstrated. It is shown that subject to different changes of revenue tone kilometers (RTK), the cost trends of carbon emissions and the changes in profits of different flight routes appear to be similar. Moreover, it is also shown that when the RTK are higher, a choice of a wider-bodied aircraft could lead to higher profits. Finally, it is shown that without the pre-assumptions of considering more complicated routes and financing methods, a self-purchased aircraft appears to contribute more profits. [Copyright &y& Elsevier]

International law questions linked to a potential future European Union 'emission trading scheme' for shipping are addressed. If such a scheme were to be introduced (which is not yet clear), and if it were designed to cover emissions that have occurred beyond the territorial waters of the Member States or even in other States' maritime zones (which, in that case, seems likely), it would evoke interesting questions of principle relating to the jurisdiction of States to impose requirements on foreign ships for matters which take place beyond their territory. Different approaches to the question are discussed, starting from the law of the sea, but also including a brief review of other potentially relevant branches of international law. It is concluded that international law does not necessarily prevent the establishment of such a scheme, but places a number of important limitations on its design. [ABSTRACT FROM AUTHOR]

The article focuses on the European Union (EU) Directive on Industrial Emissions reforms for pollution control. It mentions that the directive aims to implement a holistic integrated approach for pollution control in industrial activities and seeks to address issues faced by the Directives on Integrated Pollution Prevention and Control. It states that the directive requires Members States to strengthen the policy of issuing permits for industries.

Many countries have begun to look increasingly toward the Clean Development Mechanism (CDM) as one of the key tools to increase the cost effectiveness of fulfilling their compliance requirements with the Kyoto Protocol. It is believed, from a theoretical point of view, that linking emissions trading schemes to the Kyoto Protocol's flexible mechanisms can lead to a decrease in carbon prices and so a reduction of the overall compliance costs. This study provides an analysis of the relationship between the European Union Emissions Trading Scheme (EU ETS) and the CDM. The study considers the dynamic interactions between European allowance (EUA) prices and certified emission reduction (CER) prices, and uses time-series econometric techniques to test for the existence of long-term links and causal relations between the prices. Furthermore, the generalized impulse response analysis has been used to investigate temporal interactions among the variables. The results show that CER prices do not have a statistically significant effect on EUA prices; rather, it is the EUA prices that have driven CER prices during the period investigated. The constraint on the availability of CERs emanating from supplementarity and additionality criteria, as stipulated by the Kyoto Protocol, is one of the major factors that can be hypothesized to account for this finding. [ABSTRACT FROM AUTHOR]

There has been a sharp increase in the amount of litigation regarding the European Union Emissions Trading Scheme in recent years. Cases revolve mainly around the limits of the Commission's discretion in reviewing National Allocation Plans (NAPs). This may seem a mere technicality; however, as this article aims to show, it is better described as an undercurrent of legal challenges relating to the allocation of authority between the Member States and the Commission in this particular climate change regime. By examining four cases in particular - United Kingdom v Commission, Germany v Commission, Poland v Commission and Estonia v Commission - attention to these issues will be brought to light, and the idea of caps being simply instrumental in emissions trading refuted. [ABSTRACT FROM AUTHOR]

This paper is concerned with the mathematical analysis of emissions markets. We review the existing quantitative analyses on the subject and introduce some of the mathematical challenges posed by the implementation of the new phase of the European Union Emissions Trading Scheme as well as the cap-and-trade schemes touted by the U.S., Canada, Australia, and Japan. From a practical point of view, the main thrust of the paper is the design and numerical analysis of new cap-and-trade schemes for the control and reduction of atmospheric pollution. We develop tools intended to help policy makers and regulators understand the pros and cons of the emissions markets. We propose a model for an economy where risk neutral firms produce goods to satisfy an inelastic demand and are endowed with permits in order to offset their pollution at compliance time and avoid having to pay a penalty. Firms that can easily reduce emissions do so, while those for which it is harder buy permits from firms that anticipate they will not need all their permits, creating a financial market for pollution credits. Our equilibrium model elucidates the joint price formation for goods and pollution allowances, capturing most of the features of the first phase of the European Union Emissions Trading Scheme. We show existence of an equilibrium and uniqueness of emissions credit prices. We also characterize the equilibrium prices of goods and the optimal production and trading strategies of the firms. We use the electricity market in Texas to numerically illustrate the qualitative properties of these cap-and-trade schemes. Comparing the numerical implications of cap-and-trade schemes to the business-as-usual benchmark, we show that our numerical results match those observed during the implementation of the first phase of the European Union cap-and-trade CO2 emissions scheme. In particular, we confirm the presence of windfall profits criticized by the opponents of these markets. We also demonstrate the shortcomings of tax and subsidy alternatives. Finally we introduce a relative allocation scheme which, while easy to implement, leads to smaller windfall profits than the standard scheme. [ABSTRACT FROM AUTHOR]

Political feasibility (or infeasibility) is often associated with target-group support (or opposition) of specific policy alternatives. We argue that target-groups' capacity to influence the spectrum of politically feasible policy options tends to be higher when (1) target groups control resources needed by decision-makers, that (2) are agenda-setters and/or veto players in the decision-making process. In the 2008 revision of the European Union Emissions Trading Scheme (EU ETS) exemptions from the basic principle of full auctioning of greenhouse gas (GHG) emissions allowances can all be traced to target-group interest representation by single veto players or blocking minorities in the European Council and the Council of Ministers. Our analysis indicates that target groups succeeded in constraining the spectrum of politically feasible policy options to the extent that their positions were unified and threats to shut down or relocate activity were perceived to be relevant, severe and credible. Our findings confirm both the significance and the limits of portfolio assignment in the Commission. Even with Directorate General (DG) Environment in an agenda-setting role, target groups acquired exemptions through their relations with veto players in the Council. [ABSTRACT FROM AUTHOR]

An upstream trading scheme is described that could operate alongside the EU Emissions Trading Scheme (EU ETS). In this proposed scheme, fossil fuel producers (or suppliers) surrender allowances for the carbon contained in their fuel sales. Since the administrative costs are relatively low, such a scheme could provide a simpler, cheaper and more practical alternative to personal carbon trading, while at the same time delivering comparable economic and environmental benefits. The incentive effect for downstream consumers would be similar to a carbon tax. However, instead of a fixed and visible tax rate, the carbon price would be variable and largely hidden within the price of fuel. Consideration is given to the distributional impacts of the scheme and the potential benefits of linking to the EU ETS - including improved liquidity, reduced price volatility and reduced scope for exercising market power. It is argued that an upstream scheme is likely to have greater political acceptability, while at the same time delivering comparable performance in terms of economic efficiency, environmental effectiveness and social equity. [ABSTRACT FROM AUTHOR]

Australia is establishing an economy-wide emissions trading scheme, with a detailed proposal tabled by government in December 2008 and a scheme start planned for 2011. The proposal is for unilateral linking through the Clean Development Mechanism and Joint Implementation, but no initial bilateral linkages. Concerns about permit prices rising too high are prominent, and are reflected in a ban on permit sales and a price cap provision. This article evaluates the proposed Australian scheme with regard to international emissions trading and linkages. Different scenarios for the Australian permit price under unilateral linking are considered. Options for bilateral linking with the European Union and New Zealand schemes are evaluated. We argue that Australia should dismantle the obstacles to linking, including the proposed price cap, and move towards bilateral linking with suitable schemes. [ABSTRACT FROM AUTHOR]

The current emissions trading debates in the EU and the USA were examined and the prospects for creating a transatlantic carbon market were analysed. A future US Emissions Trading Scheme (US ETS) may be designed very differently from the EU ETS, raising questions of compatibility. Crucial differences relate to the stringency of targets, the recognition of offsets, and price control mechanisms. These differences flow directly from the different policy and economic perspectives on emissions trading and climate policy in the USA and the EU. The two sides should therefore seek a way forward that reconciles potentially different climate policies. For example, the USA and the EU should consider an effort to harmonize carbon prices, and US legislation could phase out cost-containment mechanisms after some time period. Finally, both US and EU policies should have mechanisms that allow periodic recalibration, which would allow each to adjust to new technology, react to developing-country climate policies, and learn from each other. In the longer term, this would allow both sides to strive for greater policy convergence, either through linked trading systems, harmonized prices, or a transition from harmonized prices to linkage. [ABSTRACT FROM AUTHOR]

The EU emissions trading system (ETS) is the first large-scale international emissions trading system and a “cornerstone” in EU climate policy. A key element in the ETS implementation process is deciding upon the ceiling (“cap”) for the emissions included in the ETS. Over time, a significant change and centralization of this model has taken place. In order to understand this development, we need to acknowledge the increasing acceptance of stronger centralized governance among the member states due to ETS pilot phase problems; take into consideration frustration in the European Commission over complex and differing National Allocation Plans; and add the fact that the Kyoto Protocol target was getting nearer and a good performance of the “flagship” ETS was becoming increasingly important. Hence, although the case supports the importance of acknowledging the multilevel character of the EU, it still emphasizes the key role of changes in member states' interests and positions for understanding outcomes. [ABSTRACT FROM AUTHOR]

Decarbonization is an activity aimed at reducing greenhouse gas emissions to limit climate change and global warming. Ensuring macroeconomic stabilization is the basis for ecological action. The question is whether macroeconomic stabilization helps companies, institutions and countries act for decarbonization. This article presents research on the impact of components of macroeconomic stabilization on decarbonization and energy efficiency in the largest greenhouse gas emitters in the European Union from 1990 to 2020. We focus on the following countries, France, Germany, Italy, Poland and Spain. The contribution to knowledge is using the pentagon of macroeconomic stabilization to assess macroeconomic stabilization's impact on decarbonization and energy efficiency. According to the correlation coefficients, the Ordinary Least Squares and the Seemingly Unrelated Regression method, there is a statistically significant impact of components of macroeconomics stabilization on decarbonization and energy efficiency. Moreover, our models show a different strength and direction of relationships between the explained and explanatory variables. Research results confirm the necessity to coordinate the macroeconomic with environmental policy. We think that it is essential to use effective tools of economic support (European Union Emissions Trading System, environmental taxes) and greater pressure from European Union institutions on countries that emit harmful substances. [ABSTRACT FROM AUTHOR]

The neoliberalisation of international climate policy through devices such as emissions trading has led to a significant restructuring of governance competencies between supranational, national and non-state actors. This article explores the implications of this restructuring for the scalar politics of climate governance by examining the European Union emissions trading scheme, the world's largest multi-state carbon-trading scheme. Analysis shows that although the member states were prepared to accede to a common legal framework for emissions trading, its implementation has been characterised by intense sovereignty disputes over emissions allowances. The article concludes by reflecting on the scalar politics of international climate governance in an unevenly regulated and competitive world. [ABSTRACT FROM AUTHOR]

This paper analyses the development of a new policy instrument as an innovation process in governance. Using the innovation journey concept to track the process in which 'emissions trading' emerges as a novel configuration in environmental governance shows how the policy instrument develops dynamics of its own, partly independently of policy problems and goals. These dynamics cut across governance domains, from air pollution policy in the USA to climate policy in the European Union. Interactions across science, policy development and the governance domains in which the instrument is applied prove to be critical for the transition between phases: from options to first developments; to experiments with a prototype; further diffusion; and, finally, the formation of a transnational policy regime. Key factors are openings in existing governance structures, establishment of linkages with contexts of implementation and the generation of momentum through the 'carbon industry' as an emerging service economy. [ABSTRACT FROM AUTHOR]

Which actors in the aviation sector ought to be obliged to participate in emissions trading? The European Commission opted for the aircraft operator in their proposal for a Directive. A major drawback is that non-EU aircraft operators might legally challenge their inclusion in this scheme and, if the challenge was successful, discrimination between EU and non- EU operators would undermine the scheme. An alternative would be to place an obligation on fuel suppliers to prove possession of allowances, thus avoiding discrimination. However, emissions trading can be evaded to some extent by increased refuelling beyond EU boundaries (tankering).Typical city pairs were used to analyse the conditions under which such tankering strategies are economically attractive. The analysis shows that the attractiveness of tankering depends substantially on the relationship between fuel prices and allowance prices. If the price relation as of March 2006 is taken as a basis, tankering would be attractive within a radius of up to 4,000 km especially on southbound and eastward routes. Emissions trading could, under unfavourable conditions, be evaded for up to 20% of the total fuel consumption in aviation with the help of tankering. Although this value is only a theoretical upper limit, more than 10% of fuel consumption could be affected by tankering. [ABSTRACT FROM AUTHOR]

Although the aviation sector is one of the fastest growing climate change contributors in Europe, it is not covered by the European Union's Emissions Trading Scheme (EU-ETS). Therefore the European Commission suggested including aviation in the EU-ETS and announced the aim of putting forward a legislative proposal by the end of 2006. In this article the legal aspects, which have to be considered for an successful inclusion of aviation into the EU-ETS, will be reviewed. This includes the legal framework for the inclusion of aviation into the EU-ETS which consists of the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Community Law. Important legal aspects are also possible legal obstacles like the existing traffic rights in the different Member States, bilateral air transport agreements like the Open Skies agreements and the Chicago Convention. Another crucial legal point of the inclusion of aviation into the EU-ETS is the interplay of the EU-ETS and the Kyoto Protocol. Furthermore the legal aspects regarding the scope and certain design points of emission trading scheme will be reviewed. This includes the obliged parties, the allocation and certain points of the administration. [ABSTRACT FROM AUTHOR]

This paper focuses on potential implications from the introduction of the European Union's Emissions Trading Scheme in January 2005 (EUETS) for defined 'point sources', or stationary installations, in the energy and manufacturing industries. This Scheme is expected to become integrated with international emissions trading from 2008 within the framework of the Kyoto Protocol, following the implementation of that agreement in February 2005. The paper explains the background to the EUETS, focusing on its structure as a 'cap and trade' system for defined installations, and how it differs from the UK's Emissions Trading System, which preceded it and will continue to operate in parallel until 2008. The paper highlights some of the difficulties in harmonization of the Scheme across all of the member countries of the EU and then discusses the economic implications arising from increased energy prices and consequent increased operating costs for energy-intensive industries. The paper concludes that this may give rise to continued relocation of manufacturing industries from Europe to countries not subject to emission targets or caps, such as China, India and the USA. This relocation may be mitigated if European industries implement carbon saving technologies and procedures in a cost-effective manner, and such actions will become particularly important if those countries not subject to targets before 2012, such as China and the USA, do not change their position thereafter. [ABSTRACT FROM AUTHOR]

The article reflects on the European Union Emissions Trading Scheme (ETS). The scheme, commenced on January 1, 2005, aims to regulate emissions of carbon dioxide, which was divided into two phases. The first phase plans to prepare the European Union's economy for its obligations under the Kyoto Protocol from 2005 to 2007, while the second phase will run from 2008 to 2012. The European Unions's ETS covers 11,000 to 12,000 installations from 5,000 companies from different sectors throughout Europe.

This paper offers an appreciation of the complex detail of the European Union's Emissions Trading Scheme and the complications encountered in linking such a scheme across 25 Member States before examining the scheme, with a view to ascertaining its potential business consequences and flirt her developments to the scheme which may occur in the months and years ahead. The author concludes that it is safe to assume that the scheme is here to stay and that it will make a valuable contribution to cutting CO2 emissions and meeting the EU'S Kyoto obligations. [ABSTRACT FROM AUTHOR]

The European emissions trading scheme (EU ETS) has an efficient and effective market design that risks being undermined by three interrelated problems: the approach to allocation; the absence of a credible commitment to post-2012 continuation; and concerns about its impact on the international competitiveness of key sectors. This special issue of Climate Policy explores these three factors in depth. This policy overview summarizes key insights from the individual studies in this issue, and draws overall policy conclusions about the next round of allocations and the design of the system for the longer term. • Allocations for 2008-2012. Allocations defined relative to projected 'business-as-usual' emissions should involve cutbacks for all sectors, in part to hedge against an unavoidable element of projection inflation. Additional cutbacks for the power sector could help to address distributional and legal (State aid) concerns. Benchmarking allocations, e.g. on best practice technologies, could offer important advantages: experience in different sectors and countries is needed, given their existing diversity. However, a common standard for new entrant reserves should be agreed across the EU, based on capacity or output, not on technology or fuel. Maximum use of allowed auctioning (10%) would improve efficiency, provide reassurance, and potentially help to stabilize the system through minimum-price auctions. These measures will not preclude most participating sectors from profiting from the EU ETS during phase II. Companies can choose to scale back these potential profits to protect market share against imports and/or use the revenues to support longer term decarbonization investments, whilst auction revenues can be used creatively to support broader investments towards a lowcarbon industrial sector in Europe. • Post-2012 design. Effective operation during phase II requires a concrete commitment to continue the EU ETS beyond 2012 with future design addressing concerns about distribution, potential perverse incentives, and industrial competitiveness. Declining free allocation combined with greater auctioning offers the simplest solution to distributional and incentive problems. For its unilateral implementation to be sustainable under higher carbon prices over longer periods, EU ETS post-2012 design must accommodate one of three main approaches for the most energy-intensive internationally traded sectors: international (sectoral) agreements, border-tax adjustments, or output-based (intensity) allocation. If significant free allocations continue, governments may also need to follow the example of monetary policy in establishing independent allocation authorities with some degree of EU coordination. Such reform for the post-2012 period would require the Directive to be fundamentally renegotiated in relation to allocation procedures. Such renegotiation is neither feasible nor necessary for phase II operation. Rather, phase II should be a period in which diverse national approaches build experience, whilst the profits potentially accruing to participating sectors can be used to protect market share and jump-start their investments for a globally carbonconstrained future. [ABSTRACT FROM AUTHOR]

The European Directive on the EU ETS allows governments to auction up to 10% of the allowances issued in phase II 2008-2012, without constraints being specified thereafter. This article reviews and extends the longstanding debate about auctioning, in which economists have generally supported and industries opposed a greater use of auctioning. The article clarifies the key issues by reviewing six 'traditional' considerations, examines several credible options for auction design, and then proposes some new issues relevant to auctioning. It is concluded that greater auctioning in aggregate need not increase adverse competitiveness impacts, and could in some respects alleviate them, particularly by supporting border-tax adjustments. Auctioning within the 10% limit might also be used to dampen price volatility during 2008-2012 and, in subsequent periods, it offers the prospect of supporting a long-term price signal to aid investor confidence. The former is only possible, however, if Member States are willing to coordinate their decision-making (though not revenue-raising) powers in defining and implementing the intended pricing mechanisms. [ABSTRACT FROM AUTHOR]

This article provides a legal analysis of some of the key issues that arise in examining the system for allocating emissions allowances under the EU's emissions trading scheme directive (EU ETS). There is a strong series of arguments in support of the view that the free allocation of allowances under the various national allocation plans (NAPs) involves an element of State aid, which has neither been formally notified to, nor cleared by, the Commission under the EC Treaty. Even if it is found properly to have been notified, there are serious doubts as to whether the extent of aid granted satisfies the proportionality principle. As a result, the operation of the EU ETS may be subject to some legal uncertainty with regard to possible legal challenges to the current allocation of allowances. Going forward, proposals to amend the operation of the EU ETS must take into account similar State aid considerations (particularly proportionality) and the experience gained from the working of the EU ETS in phase I. The structural outline of a possible legislative package has been suggested, which could achieve the safeguarding of commercial and legal certainty under the current allocation regime, while at the same time providing a basis for amendment of the allocation mechanism under the EU ETS for phase II and beyond. [ABSTRACT FROM AUTHOR]

Reimplementation of an EU-wide emissions trading system by means of National Allocation Plans is at the core of the European environmental policy agenda. EU Member States must allocate their national emission budgets under the EU Burden Sharing Agreement between energy-intensive sectors that are eligible for European emissions trading and the remaining segments of their economies that will be subject to complementary domestic emission regulation. We show that such hybrid emission regulation may lead to substantial excess costs compared to a comprehensive emissions trading system covering all segments of the economy. Furthermore, the hybrid system associated with the current design of National Allocation Plans is likely to discriminate against sectors that are not part of the emissions trading scheme. The interested reader can make use of a web-based interactive simulation model in order to specify and evaluate alternative settings of the EU emissions trading system. [ABSTRACT FROM AUTHOR]

With the adoption of the United Nations Framework Convention on Climate Change (1992) and the Kyoto Protocol (1997), an impressive international regime on climate change has emerged, involving over 190 countries. It includes legally binding quantitative targets on the emission of greenhouse gases for thirty-eight countries as well as for the European Union. In addition, the regime offers guidelines and incentives for countries to develop climate policy. The development of national climate policy strategies is legally binding, but countries are free to select their own policies and measures. Yet, since national climate policy is discussed in and promoted by international institutions, convergence of policies and measures can be expected. We present an empirical analysis of policy output and policy outcome convergence, based on the National Communications of twenty-three European countries. Our results suggest that in most European countries the explorative phase of climate policy has evolved into the selection and further elaboration of a set of core measures (especially in the energy and transportation sectors), implying some output policy convergence so far. [ABSTRACT FROM AUTHOR]

El artículo habla de los obligaciones establecidas bajo el Protocolo de Kioto con respecto a la reducción de emisiones en la industria empresarial. El aumento de las emisiones de gases de efecto invernadero es uno de los problemas ambientales que la Unión Europea combate. Unas de las surgerencias es el establecimiento de un mercado de compra-venta para las emisiones. La implementación de ahorros energéticos en los sectores hogares y de transporte también ayudarán a combatir la aumentación de emisiones.