The Impact of the EU-ETS and Other Incentives in Reducing GHG Emissions

An excellent new student reading for measuring the effectiveness of the European Union’s Emissions Trading System could be a very recent posting on theenergycollective.org’s website. The article sought to assess the relative importance of the EU-ETS and other incentive mechanisms to reduce greenhouse gas emissions in the European Union during the past 15 years.

Among his conclusions:

  1. While EU-15 aggregate emissions declined by 6.5% in 2010 from 1990 levels, two nations, the UK and Germany, account for ALL of these emissions reductions. If these two nations were removed from the equation, emissions of the remaining founding EU members actually ticked up 1.9% during this period;
    1. Moreover, the majority of emissions declines in the UK and Germany occurred prior to either the signing of the Kyoto Protocol or implementation of the EU-ETS, with 80% of these declines prior to institution of the EU-ETS
  2. The article suggests that the principal driver of Europe’s rapid expansion of clean energy resources has not been the EU-ETS, but rather robust feed-in tariffs provided to solar, wind and other low-carbon sources. While the allowance price of the EU-ETS during Phase II fluctuated between 8-32 euros/ton from 2008-2012, German feed-in tariffs ranged from an implicit carbon price of $69-342/ton, 3-18x as high as the average EU-ETS carbon price in 2010;
  3. The article also suggests that it’s not surprising that nations with generous feed-in tariffs, such as Germany, have experienced much more robust growth in clean energy than in nations e.g. Romania and Finland, which lack such policies, yet are parties to the EU-ETS;
  4. Overall, the article concludes that “it is clear that direct government investment in technology provides a more powerful and effective market signal for clean energy investment than the more modest and fluctuating carbon prices established by an Emissions Trading Scheme or cap-and-trade system.

This would be an excellent article to launch a discussion of feed-in tariffs also, and their role in policy making. Given the efforts to rein in feed-in tariffs costs in countries e.g. Germany, it would be interesting to ask students whether they think this is ill-advised in the face of the data in this article. Also, do students think there is an incremental benefit to cap-and-trade programs that justify continuing to use them in tandem with incentive mechanisms, e.g. feed-in tariffs, or would it make more sense to focus on the former mechanisms?

 

 

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