ETCLIP – The Challenge of the European Carbon Market: Emission Trading, Carbon Leakage and Instruments to Stabilise the CO2
Price. Price Volatility in Carbon Markets: Why it Matters and How it Can be Managed
WIFO Working Papers, 2011, (409), 25 Seiten
Project co-ordinator: Daniela Kletzan-Slamanig (WIFO) • The project ETCLIP is funded by the Austrian "Klima- und Energiefonds"
and is carried out within the research programme "NEUE ENERGIEN 2020".
The environmental effectiveness of an emission trading system depends on the one hand on the stringency of the cap and on
the other hand on the scheme's ability to provide stable regulatory conditions and incentives for investment in emission saving
technologies. However, in case of highly volatile CO2 prices no clear investment signal is provided and hence firms' decision
making and planning is rendered difficult. Analyses of price developments in the European Emission Trading Scheme (EU ETS)
indicate that in Phase 1 (2005-2007) fluctuations were mainly caused by incomplete information at the beginning, adjustments
after the emergence of verified emission data and regulatory mechanisms. At the beginning of Phase 2 (2008-2012) in contrast
a decline in carbon prices was observed as firms sold surplus allowances resulting from lower emissions due to economic recession.
For Phase 3 of the EU ETS (2013-2020) hence the introduction of price stabilisation measures has been suggested by several
member countries during the discussions on the EU energy and climate package. Various instruments can be integrated in a cap-and-trade
scheme in order to reduce price volatility such as provisions for banking and borrowing, the approval of offsets for compliance
purposes and hybrid systems, i.e., combinations of price and quantity mechanisms. Given the long-term nature of climate policy,
the related uncertainties regarding technological change and political frameworks, and given a rising speculation in carbon
markets, such price stabilisation approaches should be considered for the future design of emission trading schemes.
Project co-ordinator: Daniela Kletzan-Slamanig (WIFO) • The project ETCLIP is funded by the Austrian "Klima- und Energiefonds"
and is carried out within the research programme "NEUE ENERGIEN 2020".
Studie von: Österreichisches Institut für Wirtschaftsforschung
Mit finanzieller Unterstützung von: Klima- und Energiefonds
Despite slow progress on international post-2012 climate policy architecture, the EU will expand its emissions trading scheme
(the EU ETS) beyond 2020. Three major modifications are planned: 1. auctioning as the initial allocation mechanism (with some
exemptions for energy intensive, trade exposed sectors), 2. broader sectoral coverage, and 3. increased stringency of reduction
targets. Due to this unilateral approach, emission reductions achieved in the EU might be partially offset by emission increases
in non-regulated countries, a phenomenon known as carbon leakage. To contest this claim, we employ a multi-regional Computable
General Equilibrium model for Austria and its main trading partners to analyse the consequences for output, international
trade and carbon emissions of different unilateral EU climate policy options as well as climate policy architectures which
extend towards other Annex I countries. For Austria, we find that any of the unilateral policies affects exports and imports
more strongly than domestic production, moreover imports decline more than exports, particularly in energy intensive sectors.
Project co-ordinator: Daniela Kletzan-Slamanig (WIFO) • The project ETCLIP is funded by the Austrian "Klima- und Energiefonds"
and is carried out within the research programme "NEUE ENERGIEN 2020".
Mit finanzieller Unterstützung von: Klima- und Energiefonds
Studie von: Österreichisches Institut für Wirtschaftsforschung
The European Commission has assessed in 2009 the sectors that will be covered under the Phase III of the EU emissions trading
scheme (EU ETS) in order to estimate the impact from unilateral carbon pricing on the environmental effectiveness of the EU
ETS. It has identified 164 sectors being at "risk of carbon leakage". There are, however, analytical difficulties with correctly
identifying sectors at risk. Using only quantitative criteria like cost impact and trade intensity leads to too broad results.
Qualitative assessments focusing on those sectors with the highest share in carbon emissions under the EU cap could instead
offer a better understanding of the nature of the risk of leakage. This study offers an example of an in-depth analysis to
identify the scale and nature of the risk of carbon leakage. It investigates the European steel, cement and pulp and paper
industries.
Project co-ordinator: Daniela Kletzan-Slamanig (WIFO) • The project ETCLIP is funded by the Austrian "Klima- und Energiefonds"
and is carried out within the research programme "NEUE ENERGIEN 2020".
After the climate conferences in Copenhagen and Cancun, it is likely that the EU remains more ambitious regarding greenhouse
gas reduction targets than other countries. The possible problem of carbon leakage and instruments to tackle it therefore
remains an important issue in the European climate policy debate. The reduction of competitive distortions and carbon leakage
induced by different CO2 prices in the EU and important trading partners is one of several reasons for the EU to aim for the
establishment of a trading link between the European Emission Trading Scheme (EU ETS) and other domestic or regional emissions
trading systems in developed and developing countries. Main reasons for linking include higher cost efficiency to meet a given
reduction target as well as improved market liquidity resulting in more robust and stable price signals.
Project co-ordinator: Daniela Kletzan-Slamanig (WIFO) • The project ETCLIP is funded by the Austrian "Klima- und Energiefonds"
and is carried out within the research programme "NEUE ENERGIEN 2020".
The European Emission Trading Scheme (EU ETS) is a key instrument in European climate policy and covers emitters from the
energy and manufacturing sector. The ETS pilot phase (2005-2007) was characterised by an oversupply of emission allowances
mainly due to the "generous" allocation of allowances by member countries. For the second trading phase (2008-2012) the European
Commission aimed at increasing the stringency of the overall emission cap and took a more active role in approving member
countries' National Allocation Plans. Due to the decline in economic activity and emissions in the course of the economic
crisis, the cap, however, was only stringent in 2008 whereas 2009 and 2010 both showed a long position for EU total. Differences
in national and sectoral caps are found for all years. In this paper, we analyse differences in allocation patterns, i.e.,
in the stringency of the cap and in the spread between installations, until 2010. We focus on general sectoral allocation
patterns and perform an in-depth analysis for three emission intensive sectors: "power and heat", "cement and lime" and "pulp
and paper". Furthermore, we discuss the impact of the economic crisis on the emissions of these sectors in detail.
