EU ETS reform
Reform of the European Union’s Emissions Trading System (EU ETS) is an important issue in the European policy debate. The Institute researches what long term reforms are required to make the system more responsive to economic shocks that could affect the price of allowances. The Institute’s research also looks at the design of carbon markets more broadly, exploring issues such as linking emissions trading schemes, allowance allocation rules for energy intensive sectors and the potential for market oversight mechanisms.
Key publications:
Submission to the inquiry by the Energy and Climate Change Committee inquiry on ‘Leaving the EU: implications for UK climate policy’
This submission explores whether the UK should seek to stay in or leave the EU emissions trading system (EU ETS) as part of Brexit negotiations. It finds that leaving the EU ETS would result in the UK losing access to low-cost emission reduction opportunities that are only available in what is currently the world’s largest carbon market. It also highlights that leaving the EU ETS to link with other existing or planned emissions trading systems could generate significant administrative costs that potentially offset any economic benefits. read more »
Emissions trading systems with cap adjustments
This working paper analyses the design of the market stability reserve proposed as part of the reform of the European Union emissions trading system. read more »
Inclusion of Consumption of carbon intensive materials in emissions trading – An option for carbon pricing post-2020
A project led jointly by Climate Strategies and DIW Berlin has been exploring whether inclusion of domestic sales of selected energy intensive commodities (e.g. steel) in domestic emission trading schemes … read more »
Methods for Evaluating the Performance of Emission Trading Schemes
This report provides a short summary of assessment methodologies that have been used to evaluate different operational aspects and outcomes of existing trading schemes, a literature which to date draws primarily from the EU ETS experience. read more »
Searching for carbon leaks in multinational companies
This paper examines whether the European Union Emissions Trading System (EU ETS) has led companies to shift the location of production, thereby creating carbon leakage. read more »
EU ETS, Free Allocations, and Activity Level Thresholds: The Devil Lies in the Details
It is well known that discontinuous jumps or thresholds in tax or subsidies are socially inefficient, because they create incentives to make strategic behavioral changes that lead to substantial increases … read more »
Solving the clinker dilemma with hybrid output-based allocation
This paper proposes an innovative solution to distribute free allowances to the cement sector under emissions trading systems. read more »
Modernization and innovation in the materials sector: lessons from steel and cement
This report analyses the effectiveness of climate and other related policies in the steel and cement sector over the last 15 years and explores what policy options are available for carbon intensive materials. read more »
Asymmetric industrial energy prices and international trade
This paper measures the response of bilateral trade flows to differences in industrial energy prices across countries. Using a panel for the period 1996-2011 including 42 countries, 62 sectors and … read more »
Is a Market Stability Reserve likely to improve the functioning of the EU ETS? Evidence from a model comparison exercise
Report explores what market and regulatory failures could inhibit the functioning of the EU ETS and result in deviations from the efficient abatement pathway. read more »
Submission to the inquiry by the House of Commons Select Committee on Energy and Climate Change on ‘Linking Emissions Trading Systems’
Paper looks at what are the main challenges to linking emissions trading systems and what are the consequences of failing to address them adequately. read more »
FP7 Entracte project
The second ENTRACTE newsletter reflects the contribution of the GRI/LSE research project for a functioning climate policy taking into account a careful design. It gives an overview about recent research … read more »
EU ETS, free allocations and activity level thresholds, the devil lies in the details
Energy intensive and trade exposed sectors receive a proportion of their allowances (EUAs) for the European Union emissions trading system (EU ETS) free of charge to prevent carbon … read more »
The effects and side‐effects of the EU emissions trading scheme
As many countries, regions, cities, and states implement emissions trading policies to limit CO2 emissions, they turn to the European Union’s experience with its emissions trading scheme since 2005. read more »
Carbon control and competitiveness post 2020: the cement report
Cement industry top management now has little confidence in the EU ETS; structural reform is needed to help investment in energy efficiency and innovation, and reduce energy costs and carbon … read more »
Sectors under scrutiny: evaluation of indicators to assess the risk of carbon leakage in the UK and Germany
One of the central debates surrounding the design of the European Union Emissions Trading Scheme is the approach to address carbon leakage concerns. read more »
System responsiveness and the European Union Emissions Trading System
This paper argues in favour of a reform of the European Union Emissions Trading System (EU ETS) that makes the system more responsive to unexpected price shocks. The paper proposed … read more »
Sectors under scrutiny – Evaluation of indicators to assess the risk of carbon leakage in the UK and Germany
One of the central debates surrounding the design of the EU Emissions Trading Scheme is the approach to addressing carbon leakage. Correctly identifying the economic activities … read more »
Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without non-regulated companies
This paper examines the investment strategies of compliance companies in irreversible abatement technologies and the environmental achievements of the system in an inter-temporal cap-and-trade market using laboratory experiments. The … read more »
Options for structural measures to improve the European Union Emissions Trading System: response to a European Commission consultation
Main points The impact of ‘back-loading’, a short-term measure, will be limited. ‘Back-loading’ is unlikely to have a significant impact on the price of emissions allowances, unless the ‘back-loaded’ allowances … read more »
Emissions trading with profit-neutral permit allocations
This paper examines the impact of an emissions trading scheme (ETS) on equilibrium emissions, output, price, market concentration, and profits in a generalized Cournot model. We develop formulae for … read more »
Assessing the effectiveness of the EU Emissions Trading System
As an increasing number of countries, regions, cities and states implement emission trading policies to limit cap CO2 emission, many turn to the experience of the … read more »
Environmental policy and directed technological change: evidence from the European carbon market
This paper was updated in February 2013 This paper investigates the impact of the EU Emissions Trading Scheme (EU ETS)on technological change. We exploit installations-level inclusion … read more »
Integrated EUA and CER price modelling and application for spread option pricing
In this paper, we propose a market consistent futures price dynamics model for cap-and-trade schemes, designed in the spirit of the European Union’s Emissions Trading Scheme … read more »
New rules, new politics, same actors: explaining policy change in the EU ETS
The allocation rules for phase one EU ETS emissions permits demonstrates that energy generators were lobbying winners because they successfully blocked differential treatment (rules) from energy … read more »
Properly designed emissions trading schemes do work!
Emissions trading markets have been touted as the most efficient mechanism to achieve environmental goals at least cost. Whether in the form of voluntary markets or … read more »
Hot topics
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China
How will China make the shift to low-carbon growth?
Implementing the Paris Agreement
Research and analysis produced in the run up to the Paris Agreement.
Decarbonising electricity
How will the UK and Europe make the transition to a low-carbon power sector at the lowest cost?
EU ETS reform
What will successful reform look like for the world’s largest carbon market?
Green growth
Can environmental policies deliver increased economic growth and prosperity?
Economic competitiveness
Are environmental policies a threat to economic competitiveness?
China
How will China make the shift to low-carbon growth?
Implementing the Paris Agreement
Research and analysis produced in the run up to the Paris Agreement.
Decarbonising electricity
How will the UK and Europe make the transition to a low-carbon power sector at the lowest cost?
EU ETS reform
What will successful reform look like for the world’s largest carbon market?
