The unintended consequences of the EU ETS cancellation policy

Bruninx, Kenneth and Ovaere, Marten and Gillingham, Kenneth and Delarue, Erik (2019): The unintended consequences of the EU ETS cancellation policy.

Abstract

With the Phase 4 cancellation provision, the cumulative emissions cap of the EU ETS has become dependent on the amount of surplus allowances and future emissions abatement costs. In this paper, we discuss how the design of the market stability reserve greatly increases uncertainty over cumulative emissions and implies that there will be more cancellation when future abatement is more costly, making the policy more stringent when the cost of compliance is higher. Moreover, we illustrate how overlapping policies may lead to paradoxical effects on cumulative emissions.

• Item Type: MPRA Paper
• Language: English
• Keywords: European Emission Trading System, Market Stability Reserve, Cancellation, Waterbed, Marginal Abatement Cost
• Subjects: L - Industrial Organization > L5 - Regulation and Industrial Policy; L - Industrial Organization > L6 - Industry Studies: Manufacturing; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L98 - Government Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q52 - Pollution Control Adoption and Costs ; Distributional Effects ; Employment Effects; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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