The Carbon Price Paradox

Should the carbon price be high to stimulate climate-friendly technologies or should it be low to realize inexpensive emission reductions? This ‘carbon price paradox’ is unraveled for the EU on the basis of legal, economic and political arguments. Legally, the primary aim of the EU ETS Directive is to promote cost-effective emission reductions. Economically, the rate of emission reduction in the EU ETS and to an increasing extent also its indirect impact on technological innovation are not so much determined by the level of the allowance price, but rather by the rate at which the emission ceiling falls. Politically, a lower carbon price creates room to lower the emission ceiling more quickly. In sum, society should welcome a low carbon price

Tradable Earthquake Certificates

This article presents a market-based idea to compensate for earthquake damage caused by the extraction of natural gas and applies it to the case of Groningen in the Netherlands. Earthquake certificates give homeowners a right to yearly compensation for both property damage and degradation of living space. The level of compensation is a percentage of the joint annual gas revenues of the Dutch government, Shell and ExxonMobil and may vary based on the intensity of earthquakes in the previous year. These certificates are tradable within the Netherlands to stimulate the illiquid housing market in the province of Groningen. Although frequent earthquakes have decreased property values in this province, a seller will still receive an efficient price for his house because he can also sell his earthquake certificate. A buyer of this certificate receives an annual stream of income and may use these revenues, for instance, to repay his mortgage or to maintain his house at reduced tax levels. However, multiple implementation problems make the viability of this market-based instrument difficult if not questionable, such as the political decision on the aforementioned level of revenue sharing and the behavioral complexity of the options that tradable earthquake certificates offer to homeowners

Linking the EU ETS with California’s Cap-and-Trade Program:A Law and Economics Assessment

This paper aims to evaluate the legal barriers and policy obstacles to linking the European Union Emissions Trading System (EU ETS) with California’s Cap-and-Trade Program in the United States, and to identify potential legal solutions to overcome them, by taking a law and economics perspective. An EU-California linkage of emissions trading systems (ETSs) is legally feasible on the basis of an informal agreement, through reciprocal amendments to the respective ETS regulations. Potential barriers could emerge, in particular from misaligned provisions regarding price containment measures and offsets. A gradual implementation of certain mutually beneficial ETS reforms, possibly in conjunction with initially restricted linkage, can provide momentum for transcending these barriers

Electricity Production and Greenhouse Gas Emissions Trading

Producing energy by burning fossil fuels leads to the emission of greenhouse gases, such as CO2. These emissions can be reduced in a cost-effective manner by implementing an Emissions Trading Scheme (ETS). An ETS allows legal entities, such as power companies and/or energy-intensive industries, to buy and sell emission rights under an increasingly stringent reduction target. There are three basic design variants of an ETS: cap-and-trade (allowance trading), performance standard rate trading, and project-based credit trading. These variants perform differently in terms of effectiveness and efficiency. The number of ETSs around the world is slowly increasing, with most of Europe, parts of North America, Kazakhstan, China, South Korea and New Zealand now covered. Only a limited number of ETSs have been linked, with some linking taking place within (though not yet between) continents. Emissions trading is an emerging regulatory instrument to efficiently protect the environment, but there remains a long way to go before a global carbon price is realised

Energy Networks, Natural Monopolies and Tariff Regulation

Energy networks, such as the networks for the transportation of electricity and gas, are natural monopolies, which implies that competition among these networks is not possible. In order to protect network users against monopoly prices and to give the network operators the incentive to operate efficiently, many countries have implemented tariff regulation. After discussing the economic consequences of natural monopolies and the need for regulation, this chapter briefly compares the various types of tariff regulation, discussing the incentive power, the ability to make a profit, and the reward on the costs of capital. The chapter concludes by discussing how tariff regulation may enable network operators to finance the necessary investments to connect new renewable energy production facilities