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Lessons from the Evaluation of Existing Emission Trading Schemes

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A special issue of Energies (ISSN 1996-1073).

Deadline for manuscript submissions: closed (30 April 2018) | Viewed by 42540

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Special Issue Editors

Prof. Dr. Ying Fan

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Guest Editor

1. School of Economics and Management, Beihang University, Beijing 100191, China
2. Institute of Policy and Management at the Chinese Academy of Sciences, Beijing 100190, China
Interests: energy economics; energy market; emission trading; energy policy; environmental policy; Energy–Environment–Economy modelling; carbon tax

Prof. Dr. Wolfgang Eichhammer

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Guest Editor

1. Competence Center Energy Policy and Energy Markets, Fraunhofer Institute for Systems and Innovation Research ISI, Breslauer Str. 48, 76139 Karlsruhe, Germany
2. Copernicus Institute of Sustainable Development, Utrecht University, Heidelberglaan 2, 3584 CS Utrecht, The Netherlands
Interests: design and evaluation of climate and energy policies; energy efficiency; renewables, emission trading, benchmarking, technology-rich bottom-up modeling of policy scenarios; innovation impacts of environmental policies

Special Issue Information

Dear Colleagues,

The European Emission Trading Scheme (ETS) has now been operating for over 10 years and has entered the third phase of development allocating greatly through auctioning and benchmarking. During the three phases of existence, a large amount of knowledge has been gathered as the scheme evolved over time.

China, as the first emerging economy has introduced emission trading in pilot schemes running at a provincial level since 2013, in Beijing, Shanghai, Tianjin, Chongqing and Shenzhen, as well as in Guangdong and Hubei Provinces. Extension to a national level is scheduled for 2017. A variety of different design schemes have been tested in the pilot schemes.

Korea started its emission trading scheme at the beginning of 2015 in its first phase and is looking forward to the scheme evolving further by introducing stronger elements for evaluation of the benchmark allocation.

Other regions of the world, such as Australia and California, have also gathered experience in allowance trading.

This is a timely moment to reflect on the experience with these schemes. This Special Issue will therefore concentrate on Lessons from the Evaluation of Existing Emission Trading Schemes in China, Korea, the European Union and other regions to assist in future design. The core objective of this Special Issue is to align the latest practices, innovation and case studies with academic frameworks and theories, and set a stable framework for the future evaluation of emission trading schemes at a worldwide level.

We, therefore, seek high-quality papers that will contribute significantly to the evaluation of ETS experiences with a focus on methodological development.

Topics appropriate to the theme of this Special Issue, include, but are not limited to:

Evaluation of the impacts of the European and Chinese Emission Trading Schemes with a focus on both the results and the methodologies, because the latter can strongly influence the messages provided by the evaluation. This may for example consider impacts in terms of emission reduction, cost efficiency or investment and trading behavior.
Experiences from the design of the existing schemes and converging elements for the future evolutions of emission trading in Europe, China and Korea but possibly also other regions of the world.
Interaction of ETS with other instruments such as renewable promotion schemes, energy efficiency policies or other climate-related policies.

Prof. Dr. Ying Fan
Prof. Dr. Wolfgang Eichhammer
Guest Editors

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Keywords

climate policy
energy policy
emission trading
allocation
evaluation
China
Korea
European Union

Published Papers (11 papers)

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Research

16 pages, 5522 KiB

Open AccessArticle

Network Features of the EU Carbon Trade System: An Evolutionary Perspective

by Yinpeng Liu, Xiangyun Gao and Jianfeng Guo

Energies 2018, 11(6), 1501; https://doi.org/10.3390/en11061501 - 08 Jun 2018

Cited by 6 | Viewed by 2559

Abstract

In this paper, a network model is constructed using real trading data from the EU carbon market. Metric indicators are then introduced to measure the network, and the economic meanings of the indicators are discussed. By integrating time windows with the network model, three types of network features are examined: growth features, structural features, and scale-free features. The growth pattern of the carbon trading network is then analyzed. As the market grow, the geodesic distances become shorter and the clustering coefficients become larger. The trends of these two indicators suggest that the market is evolving towards efficiency; however, their tiny changes are insufficient to have significant impact. By modeling the heterogeneity of the carbon trading network, we find that the trading relationships between firms obey a broken power law model, which consists of two power law models. The broken power law model can be approximately defined as a traditional power law but with a longer tail in distribution. Furthermore, we find that the model is valid for most of the time of both phases, the model only invalid when the market approaches a high growth rate. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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23 pages, 2028 KiB

Open AccessFeature PaperArticle

Impacts of the Allocation Mechanism Under the Third Phase of the European Emission Trading Scheme

by Wolfgang Eichhammer, Nele Friedrichsen, Sean Healy and Katja Schumacher

Energies 2018, 11(6), 1443; https://doi.org/10.3390/en11061443 - 04 Jun 2018

Cited by 1 | Viewed by 3201

Abstract

This paper focuses on the following two key research questions in the context of the change in allocation rules in the move from Phase I/II (2005–2012) to Phase III (2013–2020) of the European Emission Trading Scheme (EU ETS): First, how do allocations compare with actual installation-verified emissions in Phase III? For that purpose we analyse changes in sector-country allocations and verified emissions between Phase II and Phase III. The analysis is based on a selection of 2150 installations present in all phases of the EU ETS, taken from the European Union Transaction Log (EUTL) The results show that over-allocation has been considerably reduced in Phase III. Overall, allocation for the selected sectors decreased by 20% in 2013 compared to 2008 but varying across installations. Second, we investigate, whether the introduction of benchmarks in Phase III may have triggered carbon-reducing measures for industrial processes. For that purpose, we analyse for four product groups (cement clinker, pig iron, ammonia and nitric acid) the specific emissions (per tonne of product). Care was taken to define a data set with a similar delimitation of emission and production data. The findings were cross-checked through selected expert interviews. Our findings indicate that there is no evidence so far for improving specific emissions, though the strong improvement for nitric acid, as well as some improvement linked to ammonia occurring before the start of Phase III may have been supported by the introduction of Phase III. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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25 pages, 29913 KiB

Open AccessFeature PaperArticle

Analysis of Carbon Leakage under Phase III of the EU Emissions Trading System: Trading Patterns in the Cement and Aluminium Sectors

by Sean Healy, Katja Schumacher and Wolfgang Eichhammer

Energies 2018, 11(5), 1231; https://doi.org/10.3390/en11051231 - 11 May 2018

Cited by 11 | Viewed by 5092

Abstract

This paper contributes to the existing literature on carbon leakage by using a range of different publically available datasets in order to develop a systematic approach for identifying whether products are potentially at risk of carbon leakage. The scope of this paper focuses on the cement and aluminium sectors at different levels of product aggregation to demonstrate the variation in trade patterns that exist over time. The evolution of EU-28 trade flows with third countries for these sectors between 2000 and 2016 enables the selection of key third countries that could warrant further investigation via more quantitative techniques in order to determine the impact of carbon pricing on trade patterns. This systematic approach could be replicated for additional sectors in further research as part of a more regular assessment to provide evidence of carbon leakage for European industry. No evidence of carbon leakage is found in this paper for clinker and cement, while there is no conclusive evidence for unwrought non-alloyed aluminium and aluminium products. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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23 pages, 4484 KiB

Open AccessFeature PaperArticle

Determinants and Characteristics of Korean Companies’ Carbon Management under the Carbon Pricing Scheme

by Sunhee Suk

Energies 2018, 11(4), 966; https://doi.org/10.3390/en11040966 - 18 Apr 2018

Cited by 6 | Viewed by 4490

Abstract

In response to the domestic emission trading scheme, Korean companies are required to shift their strategies from voluntary or regulation-driven management approaches to innovative carbon management utilizing their carbon option linked with economic value. Using a questionnaire survey targeting companies subjected to the emission trading scheme, this study explores the status of Korean companies’ carbon management in a series of five strategies and identifies the correlation between companies’ proactive carbon strategies and pre-listed determinant factors. This study found that Korean companies’ practices in accordance with carbon pricing deviate little from conventional energy and environmental management in this phase. They are likely to be affected by the need to appear socially responsible or to make a social contribution, without having to exceed this mandate in terms activities outside of this remit. Yet, only a small proportion of companies have advanced to the stage of proactive carbon management. For them, top managers’ support and understanding are essential factors together with government pressure to factor-in issues related to carbon with their business strategies. This study provides implications for policy and corporate in promoting carbon-oriented management under the carbon policy. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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16 pages, 1039 KiB

Open AccessArticle

Institutional Change and Environment: Lessons from the European Emission Trading System

by Yolanda Fernández Fernández, María Angeles Fernández López, David González Hernández and Blanca Olmedillas Blanco

Energies 2018, 11(4), 706; https://doi.org/10.3390/en11040706 - 21 Mar 2018

Cited by 2 | Viewed by 3774

Abstract

After more than ten years of operation of EU-ETS trading, it is time to analyse the results and draw lessons from the experience. Economic research typically considers emission price as the main explanatory variables when measuring the effects of Emission Trading Systems. The novelty of this work is to analyse whether or not trade alone, as an institutional change, is effective in reducing greenhouse gases emissions. The objective of this paper is to analyse to what extent the EU-ETS as a “regulatory” instrument of the supply of allowances is responsible for the effectiveness of the carbon market as a basic tool in the reduction of emissions. The analysis also includes other overlapping policies aimed at fighting climate change, for example, the promotion of renewables. For the empirical analysis, an econometric model is estimated using panel data for the 28 European Union countries between 1990 and 2014. The econometric model include three dummy variables to measure the effectiveness of the three phases of the EU-ETS commerce in reducing emissions. Furthermore, we analyse how effective the phases are when renewables energies are included in the analysis. The results show that the EU-ETS is effective to reduce emissions and each phase has a greater impact on the reduction. Nevertheless, the system should be more flexible to adapt to the fluctuations in the demand for rights. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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31 pages, 1643 KiB

Open AccessArticle

On the Effectiveness of the Abatement Policy Mix: A Case Study of China’s Energy-Intensive Sectors

by Xin Liu, Yuan Li, Dayong Zhang and Lei Zhu

Energies 2018, 11(3), 559; https://doi.org/10.3390/en11030559 - 06 Mar 2018

Cited by 1 | Viewed by 2542

Abstract

To achieve carbon emissions control targets, policymakers often need a basket of policies to account for the complexity of abatement. The instruments in the policy mix are often interconnected. It is of great importance to study how different abatement policies perform in practice—in other words, to evaluate the effectiveness of the abatement policy mix. This paper builds a multisector partial equilibrium model and then studies the policy effectiveness using data from two energy-intensive sectors in China, namely, the iron and steel sector and the cement sector. The results show clear evidence that these policies interact, and the policy mix is not a simple aggregation but rather differs across sectors, which leads to fundamentally different scenarios in terms of energy savings, emissions reductions and production behaviors. Energy-savings subsidies can increase production and profit with a lower equilibrium level of carbon prices, whereas output-based rebating of allowances reduces production and is associated with higher carbon prices. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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11 pages, 382 KiB

Open AccessFeature PaperArticle

The EU ETS and Dynamic Allocation in Phase IV—An Ex-Ante Assessment

by Vicki Duscha

Energies 2018, 11(2), 409; https://doi.org/10.3390/en11020409 - 09 Feb 2018

Cited by 2 | Viewed by 3115

Abstract

Fear of lowering firms’ competitiveness and carbon leakage is the reason for large amounts of allowances in the European Union’s Emissions Trading System (EU ETS) still being allocated for free. At the same time, unadjusted free allocation of allowances in times of economic recession is partly responsible for the large surplus of allowances that has cumulated in the EU ETS and that is lowering prices in the market. For Phase IV, the introduction of dynamic allocation has been proposed to react to significant changes in production, to prevent the accumulation of further surplus on the one hand and to protect installations from severe underallocation on the other. A reserve of about 400 million allowances is planned for that purpose. This paper analyses the demand for certificates from this reserve under different assumptions on production development as well as different design options for Phase IV. The analysis builds on freely available allocation data from Phase III along with projections of production trends from different time periods in the past. In most of the scenarios, the 400 million allowances are sufficient to fulfil demand for allowances from dynamic allocation until at least the second half of Phase IV (often even for the whole of Phase IV). Even though certain aspects analysed are now not fully compatible with the agreed-upon Phase IV revision, the analysis indicates that the amount of allowances foreseen for dynamic allocation is sufficient for Phase IV. In particular the threshold value of 10% that was introduced in the legislation will ensure that the demand of allowances is likely well below the demand found in the different scenarios in this analysis that neglects this threshold value. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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1826 KiB

Open AccessArticle

Market Analysis during the First Year of Korea Emission Trading Scheme

by Jaeseok Lee and Jongmin Yu

Energies 2017, 10(12), 1974; https://doi.org/10.3390/en10121974 - 28 Nov 2017

Cited by 9 | Viewed by 4296

Abstract

To derive the supply and demand issues during the first phase of the Korea Emission Trading Scheme (KETS), we investigated the excess or shortage, and the carry-over inflow of carbon emission permits for all of the domestic industries and major corporations. In particular, this study explored the supply and future prospects of offset credits, as well as the allocated permits, by forecasting the inflows of offset credits using the amount of certified reduction in domestic boundaries and overseas sources. We observed both the supply and demand of permits and changes in carbon dioxide (CO₂) emission levels during the first phase (2015–2017) by comparing the estimated emission levels and the total permit supply. The results showed that permits were either in surplus or insufficient, depending on the sub-sector, and that a surplus in the supply of permits would occur if companies do not carry over more than 70 million tons of permits to the next period. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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1000 KiB

Open AccessArticle

Decomposed Driving Factors of Carbon Emissions and Scenario Analyses of Low-Carbon Transformation in 2020 and 2030 for Zhejiang Province

by Chuyu Xia, Yan Li, Yanmei Ye, Zhou Shi and Jingming Liu

Energies 2017, 10(11), 1747; https://doi.org/10.3390/en10111747 - 31 Oct 2017

Cited by 35 | Viewed by 3642

Abstract

Climate change has gained widespread attention, and the rapid growth of the economy in China has generated a considerable amount of carbon emissions. Zhejiang Province was selected as a study area. First, the energy-related carbon emissions from 2000 to 2014 were accounted for, and then the Logarithmic Mean Divisia Index (LMDI) decomposition model was applied to analyse the driving factors underlying the carbon emissions. Finally, three scenarios (inertia, comparative decoupling and absolute decoupling) for 2020 and 2030 were simulated based on the low-carbon city and Human Impact Population Affluence Technology (IPAT) models. The results showed (1) carbon emissions increased by 1.66 times from 2000 to 2014, and trends of carbon emissions were used to divide the study period into three phases (rapid, medium growth and slow decrease phases, with annual growth rates of 12.60%, 4.77% and −1.24%, respectively); (2) the energy intensity effect from 2000–2011 inhibited carbon emissions but was exceeded by the economic output effect, which increased emissions, whereas the energy intensity effect from 2011–2014 outweighed the economic output effect; (3) the scenario analyses revealed that both the comparative and absolute decoupling scenarios would remain consistent with the carbon emissions boundaries in 2020 and 2030, but the comparative decoupling scenario was more reasonable for sustainable development. In addition, appropriate design of emission trading scheme could help to achieve the comparative decoupling by financial incentives. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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2279 KiB

Open AccessArticle

How Can China Achieve Its Nationally Determined Contribution Targets Combining Emissions Trading Scheme and Renewable Energy Policies?

by Jie Wu, Ying Fan and Yan Xia

Energies 2017, 10(8), 1166; https://doi.org/10.3390/en10081166 - 08 Aug 2017

Cited by 31 | Viewed by 5868

Abstract

The adoption of emissions trading scheme (ETS) and renewable energy sources (RES) policies have been essential to achieving China’s national targets for reducing CO₂ emissions and developing non-fossil energy sources. The combination of ETS and RES policies raises an important issue: What is the effect of combining ETS and RES policies on the existing carbon market and economy? Focusing on the design of the nationwide carbon market, this paper uses a multi-regional computable general equilibrium (CGE) model to analyze the economic impacts of ETS policy when combined with RES policies in China. The results show that China’s annual ETS emissions cap should decrease by 0.3% to maintain stable CO₂ prices and achieve the targets in China’s intended nationally determined contribution (INDC). It is estimated that the CO₂ price on the nationwide carbon market would decrease by 11–64% when the renewable energy subsidy rate increases from 20 to 100%, and the total trading volume would decrease by 3–25%. The results also show that the combination of an ETS and a feed-in tariff (FIT) results in greater GDP cost and welfare loss in all Chinese regions, increasing the total social cost by 0.01–0.06%. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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2538 KiB

Open AccessArticle

Impact of Firms’ Observation Network on the Carbon Market

by Song-min Yu and Lei Zhu

Energies 2017, 10(8), 1164; https://doi.org/10.3390/en10081164 - 08 Aug 2017

Cited by 4 | Viewed by 3087

Abstract

Given the important role of the carbon market in fighting against global warming, the impact of information on the efficiency of the scheme is a critical issue for both its designers and the central authority. At least two aspects of information are worthy of attention. First is the incompleteness of information, with which the firms make decisions to minimize their abatement cost and maximize their profit. Second is the mechanism of information transmission. Based on an agent-based framework we established in our previous work, we explicitly depicted the first aspect and analysed its impact on firms’ decision-making and consequent market results. In this paper, we focus on the second aspect, transmission mechanism of information, which is depicted as an observation network among firms. The basis in reality is that the firms in the carbon market are usually from different industries or areas, and it is relatively easier to observe the conditions of firms from the same industry or area, corresponding to neighbours in the network. Four scenarios are considered, including no network, regular network, random network, and small-world network. We find that the existence of an observation network has a significant influence on the market results. Full article

(This article belongs to the Special Issue Lessons from the Evaluation of Existing Emission Trading Schemes)

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