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Title:
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The interaction between the EU emission trading scheme and national policies
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Author(s):
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Published by:
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Publication date:
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ECN
Policy Studies
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1-7-2005
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ECN report number:
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Document type:
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ECN-RX--05-137
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Article (scientific)
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Number of pages:
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18
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Published in: Climate Policy (Earthscan), , 2005, Vol.5, p.79-96.
Abstract:
National energy policies usually have a significant impact on the sectoral
and overall CO2 emissions of an EU Member State. Once the proposed EU
emissions trading scheme (EU ETS) becomes operational, however, the
CO2 performance of these policies, i.e. their effectiveness and efficiency
in reducing CO2 emissions, will differ depending on whether they affect
fossil fuel use by the participating or non-participating sectors of
this scheme. This article discusses in particular the CO2 performance
of national energy policies affecting the participating sectors of the
EU ETS. A major conclusion is that
once the EU ETS becomes operational, the ejfectiveness
of all other policies to reduce CO2 emissions of the participating sectors
becomes zero. Moreover,
in a perfect economy with no market failures, these policies will lead
to a lower CO2 efficiency and less optimal market operations of the
EU ETS. Hence, in such a situation, this coexistence of policy instruments
cannot be justified from a CO2 efficiency point of view. It will be
argued, however, that there are three reasons why the joint use ofthe
EU ETS and policies affecting the fossil fuel use of the participating
sectors may be justified: (1) improving the design of the EU ETS, (2)
correcting for market failures, and (3) meeting other policy objectives
besides CO2 efficiency. The ideas expressed in this article are illustrated
by a detailed numerical example on the interaction between emissions
trading and national energy policies. The article concludes with a summary
of its major findings and policy implications.
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