Pricing Carbon: The European Union Emissions Trading Scheme PDF
Preview Pricing Carbon: The European Union Emissions Trading Scheme
This page intentionally left blank | Pricing Carbon TheEuropeanUnion’sEmissionsTradingScheme(EUETS)istheworld’s largestmarketforcarbonandthemostsignificantmultinationalinitiative ever taken to mobilize markets to protect the environment. It will be an important influence on the development and implementation of trading schemes in the United States, Japan and elsewhere. As is true of any pioneeringpublic policyexperiment,however, thisscheme has generated much controversy. Pricing Carbon provides the first detailed description and analysis of the EU ETS, focusing on the first, ‘trial’, period of the scheme (2005 to 2007). Written by an international team of experts, itallowsreaders to getbehindtheheadlines andcome toa betterunder- standingofwhatwasdoneandwhathappenedbasedonadispassionate, empirically based review of the evidence. This book should be read by anyone who wants to know what happens when emissions are capped, tradedandpriced. a. denny ellerman isSeniorLecturerattheSloanSchoolofManage- ment,MassachusettsInstituteofTechnology. frank j. convery isHeritageTrustProfessorofEnvironmentalPolicy atUniversityCollegeDublin. christian de perthuis is Associate Professor of Economics at the UniversityParis-DauphineandHeadoftheMissionClimatoftheCaisse desDe´poˆts,France. Pricing Carbon The European Union Emissions Trading Scheme Principal authors a. denny ellerman Massachusetts Institute of Technology frank j. convery University College Dublin christian de perthuis Mission Climat of the Caisse des De´poˆts and University Paris-Dauphine Contributing authors emilie alberola Mission Climat of the Caisse des De´poˆts barbara k. buchner International Energy Agency anaı¨s delbosc Mission Climat of the Caisse des De´poˆts cate hight Mission Climat of the Caisse des De´poˆts jan horst keppler University Paris-Dauphine and Institut Franc¸ais des Relations Internationales felix c. matthes O¨ ko-Institut CAMBRIDGE UNIVERSITY PRESS Cambridge,NewYork,Melbourne,Madrid,CapeTown,Singapore, Sa˜oPaulo,Delhi,Dubai,Tokyo CambridgeUniversityPress TheEdinburghBuilding,CambridgeCB28RU,UK PublishedintheUnitedStatesofAmericabyCambridgeUniversityPress,NewYork www.cambridge.org Informationonthistitle:www.cambridge.org/9780521196475 #AssociationPourlaRecherchesurl’EconomieduCarbone2010 Thispublicationisincopyright.Subjecttostatutoryexception andtotheprovisionsofrelevantcollectivelicensingagreements, noreproductionofanypartmaytakeplacewithout thewrittenpermissionofCambridgeUniversityPress. Firstpublished2010 PrintedintheUnitedKingdomattheUniversityPress,Cambridge AcataloguerecordforthispublicationisavailablefromtheBritishLibrary LibraryofCongressCataloging-in-PublicationData Ellerman,A.Denny. Pricingcarbon:theEuropeanUnionEmissionsTradingScheme/principalauthors, A.DennyEllerman,FrankJ.Convery,ChristiandePerthuis;contributingauthors, EmilieAlberola,BarbaraK.Buchner. p. cm. ISBN978-0-521-19647-5(Hardback) 1.Emissionstrading–EuropeanUnioncountries. 2.Carbonoffsetting–European Unioncountries. I.Convery,FrankJ. II.Title. HC79.P55E5142010 363.7380746–dc22 2009038173 ISBN978-0-521-19647-5Hardback CambridgeUniversityPresshasnoresponsibilityforthepersistenceor accuracyofURLsforexternalorthird-partyinternetwebsitesreferredto inthispublication,anddoesnotguaranteethatanycontentonsuch websitesis,orwillremain,accurateorappropriate. Contents List of figures page vii List of tables xi List of boxes xiii List of appendices xiv Frequentlyused abbreviations xv Preface xvii 1 Introduction 1 2 Origins and development of theEU ETS 9 3 Allowance allocation 32 4 Effects offree allocation 85 5 Market development 122 6 Emissions abatement 158 7 Industrial competitiveness 193 8 Costs 235 9 Linkage and global implications 260 10 Conclusions 287 Annex: The interaction between theEU ETS and European electricity markets 293 Appendices 329 Bibliography 346 Index 360 v Figures 2.1 How a European legislative proposal becomes law: the co-decisionprocess page12 3.1 The relationship ofmemberstates’ NAP2 totals to NAP1totalsand first-period emissions 57 4.1 Installations’ net positions and implied trading flows, 2005–7 91 4.2 The gross and netpositions of memberstates, 2005–7 93 4.3 Shortand long positions by economic sector, 2005–7 94 4.4 Shortand long positions inthe electricity sector, 2005–7 95 4.5 Shortand long positions ofrefinery installations, 2005–7 102 4.6 The relation between allocationsand actual emissionsin period1 106 4.7 Developmentsin crude input at theshortestand longestinstallations, 1999–2007 110 4.8 UK refinery CO emissions,2005–7,relative to 2 1999–2003average 111 4.9 Planned investments in electricity generating capacity by type fortheEU15,2002–7 117 4.10 Evolution ofEuropean generating costs, 2004–8 119 5.1 The EU ETS timeline:emissions reporting, allowance delivery and allowancesurrender 124 5.2 Implied probabilityof an end-of-period surplus 126 5.3 Allowanceallocation tofirms inperiod 1 128 5.4 Effectofcompanyaggregation on allocation concentration in period 1 129 5.5 The development of EUA options trading 137 vii viii Listoffigures 5.6 EUA trading:transaction volumesby platform 138 5.7 Trading in EUA futures: contractvolumes during period 1 and period2 139 5.8 Evolution ofEUA prices, 2005–8 140 5.9 European temperatureindex, 2005–7 146 5.10 Within-period and inter-period EUA spreads,2005–8 147 5.11 Historical volatilityof EUA contracts,2005–7 149 5.12 Cross-borderflows, 2005–7 153 6.1 EU economy-wide and ETS sector CO emissions, 2 1990–2007 163 6.2 EU ETS sectoremissions,EU25, 1990–2007 165 6.3 Counterfactual emissions and abatementin theEU15 andthe new memberstates, 1990–2007 169 6.4 ETS sector emissions and abatement, Germany, 2000–7 170 6.5 Sector trends inemissions,intensity and abatement, Germany,2000–7 172 6.6 Fuel-switching relationships 177 6.7 Abatement, CO pricesand conditioningfactors 2 in theEU power sector,2005 and 2006 179 6.8 Geographic distribution ofabatement from fuel-switchingin theEU power sector,2005 182 6.9 Coal-fired and CCGTgeneration, United Kingdom, 2002–7 183 7.1 Schematic ofdry process cement production 196 7.2 Annual averagecementmarketprices, selected EU15 countries, 1995–2007 198 7.3 Cement and clinker trade flows and cement consumption, EU 27, 1996–2006 200 7.4 Schematic ofiron and steel production 204 7.5 Emissions per tonneof steel, EU15, 1990–2006 207 7.6 Pricesof raw materials inthe steel sector,2002–8 209 7.7 Net imports and consumption ofcrudesteel, EU25, 1995–2006 211 7.8 Schematic organization ofa complex refinery 214 7.9 Net imports as apercentage ofdomestic production in theEuropean Union, 2000–7 217 7.10 Evolution ofEU refinerymargins, 2000–8 218 7.11 Trends in netexcess demand for gasoline and diesel, EU25, 2000–7 221
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