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The Role of Emission Trading in Domestic Climate Policy

Michael Hanemann

Year: 2009
Volume: Volume 30
Number: Special Issue #2
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI2-5
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Abstract:
This paper focuses on two specific issues in the design of a domestic cap and trade program for GHGs � whether the cap should be located upstream or downstream, and whether trading alone will suffice to achieve the desired reduction in GHGs or will need to be supplemented with additional regulatory measures. The paper argues for a downstream cap accompanied by measures such as a renewable portfolio standard, efficiency standards for vehicles, appliances and buildings, and a low carbon fuel standard. For this argument, it is necessary to address both the theory and the empirical evidence of emission trading. After reviewing the theory, the paper examines the actual experience in the U.S. with emission trading for SO2, to see whether the assumptions used in the theory actually applied in practice. What actually happened deviated in several important respects from what was supposed to happen according to the conventional theorizing. The design of a cap and trade program for GHG is then discussed, first considering the similarities between the past regulation of air pollutants and the challenge posed by GHGs, and then making the case for a downstream cap and complementary policies.



Economics of Pricing the Cost of Carbon Dioxide Restrictions in the Production of Electricity

Dagobert L. Brito and Robert F. Curl

Year: 2011
Volume: Volume 32
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No4-2
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Abstract:
We calculate the cost of a carbon dioxide constraint in the production of electricity by modeling the replacement of coal generators with natural gas generators. We find: First, replacing coal generators with natural gas generators is the most economical way to reduce carbon dioxide emissions by 20 percent. Second, replacing existing coal generation capacity with modern coal generation plants can only reduce total carbon dioxide by 5 percent. Third, the distribution of the efficiency of coal generators in the United States restricts the range over which carbon dioxide prices effectively manage the displacement of coal by gas. Fourth, the narrow range for the price of carbon dioxide creates the possibility that a market in carbon dioxide permits will result in high volatility in the market for electricity. Fifth, the carbon prices implied by the transition from coal to gas will have very little impact on transportation fuels.



Did the EU ETS Make a Difference? An Empirical Assessment Using Lithuanian Firm-Level Data

Jurate Jaraite-Kažukauske and Corrado Di Maria

Year: 2016
Volume: Volume 37
Number: Number 1
DOI: 10.5547/01956574.37.2.jjar
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Abstract:
We use a panel dataset of about 5,000 Lithuanian firms between 2003 and 2010, to assess the impact of the EU ETS on the environmental and economic performance of participating firms. Using a matching methodology, we are able to estimate the causal impact of EU ETS participation on CO2 emissions, CO2 intensity, investment behaviour and profitability of participating firms. Our results show that ETS participation did not lead to a reduction in CO2 emissions, while we identify a slight improvement in CO2 intensity. ETS participants are shown to have retired part of their less efficient capital stock, and to have made modest additional investments from 2010. We also show that the EU ETS did not represent a drag on the profitability of participating firms.



Investment in Renewables under Uncertainty: Fitting a Feed-in Scheme into ETS

Federico Boffa, Stefano Clò, and Alessio D'Amato

Year: 2016
Volume: Volume 37
Number: Bollino-Madlener Special Issue
DOI: 10.5547/01956574.37.SI2.fbof
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Abstract:
We analyze incentives to invest in renewable energy technologies induced by the overlap of two types of policies: feed-in schemes and carbon mitigation instruments. We find that results differ markedly depending on the specific types of policies in place, reflecting different impacts of uncertainty. As a result, the recent reform to the EU-ETS system that has established the Market Stability Reserve (MSR), effective in 2019, requires to appropriately fine-tune the direct RES-E support schemes. We show that this may involve moving away from feed-in tariffs towards feed-in premia. Our results suggest that the schemes currently adopted in Germany and in Italy, broadly based on feed-in premia for large generators and on feed-in tariffs for the small ones, could well fit also the post-MSR EU carbon mitigation policy. To the contrary, other countries (e.g. France and the U.K.) may have to modify their support schemes as the MSR will become operational.





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