How to include farmers in the emission trading system?

The EU has committed itself to an ambitious 20% reduction of greenhouse gases (GHG) by 2020 compared to the 1990 emissions level. Moreover, the EU goal beyond 2012 is to strengthen, expand and improve climate change initiatives. Therefore, there is a strong need to consider more carefully how to integrate as many sectors as possible in these efforts. Farmers, however, do not trade GHG under the Kyoto agreement. The idea of including farmers in a national emission trading system has been launched in Australia but it has not yet been applied to the EU

Enforcement and Environmental Quality in a Decentralized Emission Trading System

This paper addresses the issue of whether the powers of monitoring compliance and allocating tradeable emissions allowances within a federation of countries should be appointed to a unique federal regulator or decentralized to several local regulators. To this end, we develop a two stage game played by environmental regulator(s) and the polluting industries of two countries. Regulator(s) choose the amount of emission allowances to be issued and set the level of monitoring effort to achieve full compliance, while regulated firms choose actual emissions and the number of permits to be held. We identify various, possibly conflicting, spillovers among states in a decentralized setting. We show that cost advantage in favor of local regulators is not sufficient to justify decentralization. Nevertheless, cost differential in monitoring violations can imply lower emissions and greater welfare under a decentralized institutional setting than under a centralized one. However, while a better environmental quality under decentralization is a sufficient condition for higher welfare under the same regime, it is not also a necessary condition.Emissions Trading, Environmental Federalism, Enforcement, Monitoring Cost

Production of CO2 and emission trading system

Práce je tematicky rozdělena na dvě části. První popisuje současný stav produkce plynného oxidu uhličitého, jehož existence, resp. nárůst množství v atmosféře Země, je považována za hlavní příčinu globálního oteplování a tzv. skleníkového efektu. Shrnutím většího množství zdrojů jsou zjištěny způsoby, jakými je CO2 do ovzduší produkován, čím je koncentrace jedovatého plynu nejvíce ovlivňována, a jaký je její vývoj. Druhá část se zabývá evropským i českým systémem emisního obchodování, v současné době velmi diskutovaným a aktuálním tématem. Jsou zde uvedena základní pravidla a principy obchodu s povolenkami a ukázkový případ obchodování. Také je zde posouzena existence celého aparátu, její pozitivní a negativní dopady na ekonomiky států a životní prostředí.The thesis is divided thematically into two parts. The first one describes the state of gaseous carbon dioxide production, being considered the main cause of greenhouse effect or global warming. By the summary of many sources it is revealed how CO2 is produced, what influences its concentration in air the most and the CO2 level trends. The second part is focused on European Union and Czech emissions trading system, which is actual and widely discussed topic in the last few years. The main rules, mechanisms of the market and a model case of allowances trading is presented. The existence of the whole system and its positive and negative effects on the economy and environment are discussed.

The Ten-Year Rule: Allocation of Emission Allowances in the EU Emission Trading System

In its guidance on National Allocation Plans (NAPs), the European Commission has discouraged Member States from adopting allocation methodologies that would provide incentives to firms affecting their compliance behavior. The purpose is to promote economic efficiency and to prevent strategic behavior that deviates from individual and collective cost-minimization. For example, some methodologies would reward one type of compliance investment over another. To discourage such actions, the EU Emission Trading System guidelines prohibit ex post redistribution of emission allowances within an allocation period based on behavior in that period. Similarly, the Commission has indicated that decisions about the initial distribution of allowances in the second phase (2008-2012) must depend on measures prior to 2005 so as not to give companies an incentive to adjust their behavior to receive a larger allowance allocation. However, two other aspects of the NAPs—the treatment of closures and new entrants—may also affect firm behavior. An undercurrent in these guidelines is the question of whether Member States should allow incumbent emitters to hold infinitely lived, once-and-for-all property rights to a share of the emission allowances in the future. This paper develops an approach for balancing efficiency considerations with perceived issues of fairness. We propose a ten-year rule to guide policy regarding closure of existing sources and the status of new sources and to guide the initial distribution of emission allowances in general. A ten-year rule would address issues of fairness and capture an important part of the potential gains that could be achieved through an efficient initial distribution of allowances.emission trading, allowance allocations, closures, new entrants, tradable permits, air pollution, cost-effectiveness, greenhouse gases, climate change, global warming, carbon dioxide

Europe's Twenties: A Study Using the WIATEC Model

In this paper, we use a computable general equilibrium model (WIATEC) to study the potential impact of implementing Europe's 20-20-20 climate policy. The results show that the economic costs of implementing the policy are only moderate and within the range of recent empirical evidence. Furthermore, they also indicate that there is a possibility that the existing allocations to the Europena sectors participating in the EU Emissions Trading Scheme (EU ETS) are on the low side, and therefore, there are still rooms for movement in the future.Climate policy, Energy policy, EU 20-20-20 plan, EU Emission Trading System, Computable General Equilibrium

Firm Trading Behaviour and Transaction Costs in the European Union’s Emission Trading System: An Empirical Assessment

To the best of our knowledge, this study is one of the first to empirically analyse the trading behaviour of all ETS firms during the first phase of the EU’s Emissions Trading System. We use a unique dataset which allows investigating the importance of permit trading transaction costs, such as information costs and search costs. This paper shows that transaction costs can play an important role in the initial years of the programme. These costs are significant in explaining why a number of ETS firms did not sell their unused allowances on the market. This study also supports the concerns that transaction costs might be excessive for smaller participants.emission trading; Europe; firm level data; transaction costs

Moving towards a More Sustainable World : four Essays on Renewable Energy, Emissions Trading, and Environmental Behaviour

Reducing industrial greenhouse gas emissions is essential to fight climate change. In addition, private consumption patterns have effects on emissions and the sustainable use of natural resources. This thesis examines the effect of certain environmental policies on Swedish industries and its greenhouse gas emissions, and also analyses household consumption patterns of environmental goods. The EU emission trading system (ETS) is a market-based instrument to reduce greenhouse gas emissions. Its effectiveness is under constant scrutiny, in particular since regulatory changes of the third phase are expected to have larger impacts on carbon emissions. An empirical study is conducted to evaluate the effect of the different phases of the EU emission trading system on firms’ carbon emissions and, on their low-carbon innovation activity. Results indicate that low-carbon patenting and environmental and air-related investments in firms regulated by the emission trading system have increased over time, but emissions did not decrease. Swedish firms regulated by the ETS showed better economic indicators during the first phase. When the ETS was introduced, Sweden already had in place an energy policy with the goal to increase renewable energy capacities. It is analysed whether the combination of these two systems results in counterproductive price signals. The results suggest that this is not the case. Sustainable consumption patterns must complement sustainable production. Therefore, the thesis also studies the relation of households’ green consumption and behaviour patterns, and finds that households’ willingness to pay for environmental goods in different domains tend to be complements whereas behaviours tend to be substitutes

An Economic Analysis of the Potential Influence of Carbon Credits on Farm Management Practices

The objective of the 1997 Kyoto agreement was to limit greenhouse gas (GHG) emissions among signatory countries and thereby slow global warming. Under the agreement, Canada has committed itself to reduce GHGs over the next decade by 6 percent from estimated 1990 levels. Debate has now begun on the appropriate government policies that will induce the desired GHG reductions. Regulations could be in the form of direct controls or economic incentives, such as a subsidy/tax system or an emission trading system. The success of the U.S. emission market for SO2 (Schmalenseeet al., 1998) has generated growing interest in the use of a similar market mechanism for carbon (Holmes and Friedman, 2000). The existence of a carbon credit market presents the agricultural sector with another potential revenue source (Sandor and Skees, 1999). While agriculture contributes approximately 10 percent of Canada’s greenhouse gas emissions, it also has the potential to sequester carbon through strategies such as zero tillage, reduced summer fallow and improved grazing. These sequestration activities could be incorporated into an emission trading system and create a “carbon credit†for each unit of CO2 that is removed from the atmosphere. Firms with high emission reduction costs could then buy these credits rather than bear the large abatement costs associated with reducing their GHG emission levels. The perception is that the marginal cost of abatement for agriculture is less than that for other sectors (McCarl and Schneider, 2000). Thus, farmers may be able to profit by selling credits for activities that sequester carbon. An example of such a transaction was the purchase of carbon credits from Iowa farmers who adopted no-till by a consortium of Canadian energy companies (GEMCO) (Lessiter, 1999). Whether the development of a carbon credit market will affect the management decisions of an Ontario crop farmer isthe focus of this study.Agricultural and Food Policy, Farm Management,

Should farmers participate in the EU ETS? Permit price, measurement and technology

Farmers in the EU do not trade greenhouse gases under the Kyoto agreement. This is an empirical puzzle. Should farmers participate in the EU Emission Trading System (ETS) for greenhouse gases (GHG)? Our overall answer is yes. First, farmers may harvest private net gains because of i) relatively low marginal reduction costs, especially within organic farming; ii) the avoidance of future losses in productivity as a victim of climate change; and iii) the possibility of receiving a favourable allocation system, such as grandfathering or a list of projects that release free allowances. Second, market consequences in terms of the effect on permit price and technology are overall positive, yielding a promising future for the inclusion of agriculture in the EU ETS. Finally, we propose a scheme for including the farming practices in the EU ETS that reduces the uncertainty from measuring emission reduction in this sector

The role of the regulatory framework for innovation activities: The EU ETS and the German paper industry

Based on a research framework which combines environmental economics and innovation studies, we explore the relevance of the regulatory framework for innovation activities in the German paper industry, with a focus on climate poli-cies. Innovation activities considered include research and development, adop-tion and organizational change. Empirically, we mainly rely on the survey data of paper producers and technology providers. Findings suggest that innovation activities are mainly governed by market factors and (as yet) are hardly affected by the European Emission Trading System and other climate policies. Also, the impact of these policies on innovation activities is lower for technology providers than for paper producers. However, the majority of companies expect the ef-fects of the regulatory climate policy framework on innovation to increase by 2020. --