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Assessing Emission Regulation in Europe: An Interactive Simulation Approach

Abstract:
Reimplementation of an EU-wide emissions trading system by means ofNational Allocation Plans is at the core of the European environmental policy agenda. EU Member States must allocate their national emission budgets under the EU Burden Sharing Agreement between energy-intensive sectors that are eligible for European emissions trading and the remaining segments of their economies that will be subject to complementary domestic emission regulation. We show that such hybrid emission regulation may lead to substantial excess costs compared to a comprehensive emissions trading system covering all segments of the economy. Furthermore, the hybrid system associated with the current design of National Allocation Plans is likely to discriminate against sectors that are not part of the emissions trading scheme. The interested reader can make use of a web-based interactive simulation model in order to specify and evaluate alternative settings of the EU emissions trading system.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation; Energy and the Environment – Other

JEL Codes:
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Q59 - Environmental Economics: Other

Keywords: Emissions trading, allowance allocation, National Allocation Plans, EU, greenhouse gases

DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No4-1


Published in Volume 26, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.