Carbon Pricing
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Carbon Pricing

Design, Experiences and Issues

Edited by Larry Kreiser, Mikael S. Andersen, Birgitte E. Olsen, Stefan Speck, Janet E. Milne and Hope Ashiabor

Carbon Pricing reflects upon and further develops the ongoing and worthwhile global debate into how to design carbon pricing, and how to utilize the financial proceeds in the best possible way for society. The world has recently witnessed a significant downward adjustment in fossil fuel prices, which has negative implications for the future of our environment. In light of these negative developments, it is important to understand the benefits of environmental sustainability through well-documented research. This discerning book considers the design of carbon taxes and examines the consequential outcomes of different taxation compositions as regulatory instruments. Expert contributors assess a variety of national experiences to provide an empirical insight into the use of carbon taxes, emissions trading, energy taxes and excise taxes. The overarching discussion concludes that successful policies used by some countries can be implemented in other jurisdictions with minimum new research and experimentation.
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Chapter 5: The EU emission trading scheme: first evidence on Phase 3

Claudia Kettner


Since 2005, the EU emission trading scheme (EU ETS) has been the EU’s key instrument for reducing greenhouse gas emissions from industry and from energy supply. Phase 1, the pilot phase, which ran from 2005 to 2007, and Phase 2, which covered the Kyoto commitment period 2008 to 2012, dampened expectations regarding the scheme’s performance: due to surplus allocation prices plumped, generating only a weak signal for investment in low carbon technologies. While surplus allocation in Phase 1 was the result of incomplete information, in Phase 2 it was caused by an exogenous effect, that is, the decline in emissions following the financial and economic crisis. Based on the lessons learnt from the first trading phase, several changes of the design of the EU ETS were adopted in 2008 that should help generate a stringent cap translating into carbon prices inducing low-carbon investment. First evidence on Phase 3 shows, however, persistently low carbon prices in the range of 5–6€ as of October 2014. In this chapter, the underlying developments will be investigated. After describing the changes in the design of the EU ETS in Phase 3 compared with the previous trading periods, empirical evidence on allocation, emissions and carbon prices in the EU ETS in the period 2005–2013 is presented. Empirical results confirm a structural surplus of allowances that is analyzed in the next section. The final section concludes.

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