The current priority for the European Union is to link up efficiently the various stages and platforms of its ambitious, multi-faceted blueprint for using research and investment to transform the energy economy in the coming decade. It is time to move ahead energetically with concrete actions.
The overall economic efficiency of a quantity-based approach to greenhouse gas mitigation depends strongly on the extent to which such a program provides opportunities for compliance flexibility, particularly with regard to the timing of emissions abatement. Here I consider a program in which annual targets are determined by choosing the optimal time path of reductions consistent with an exogenously prescribed cumulative reduction target and fixed technology set. I then show that if the availability of low-carbon technology is initially more constrained than anticipated, the optimal reduction path shifts abatement toward later compliance periods. For this reason, a rigid policy in which fixed annual targets are strictly enforced in every year yields a cumulative environmental outcome identical to the optimal policy but an economic outcome worse than the optimal policy. On the other hand, a policy that aligns actual prices (or equivalently, costs) with expected prices by simply imposing an explicit price ceiling (often referred to as a "safety valve") yields the opposite result. Comparison among these multiple scenarios implies that there are significant gains to realizing the optimal path but that further refinement of the actual regulatory instrument will be necessary to achieve that goal in a real cap-and-trade system.
Of the many regulatory responses to climate change, cap-and-trade is the only one currently endorsed by large segments of the scientific, economic and political establishments. Under this type of system, regulators set the overall path of carbon dioxide (CO2) reductions, allocate or auction the appropriate number of emissions allowances to regulated entities and – through trading – allow the market to converge upon the least expensive set of abatement opportunities. As a result, the trading price of allowances is not set by the regulator as it would be under a tax system, but instead evolves over time to reflect the underlying supply and demand for allowances. In this paper, I develop a simple theory that relates the initial clearing price of CO2 allowances to the marginal cost premium of carbon-free technology, the maximum rate of energy capital replacement and the market interest rate. This theory suggests that the initial clearing price may be lower than the canonical range of CO2 prices found in static technology assessments. Consequently, these results have broad implications for the design of a comprehensive regulatory solution to the climate problem, providing, for example, some intuition about the proper value of a possible CO2 price trigger in a future cap-and-trade system.
Topic:
Climate Change, Economics, Environment, and Markets
Adaptation to climate change (in comparison to the mitigation agenda) is a relatively new focus for both research and policy communities. Drawing from ongoing 'actor-based' research being carried out for the ADAM project, this briefing paper reports on the knowledge base being developed through a process of engagement with experts and key stakeholders across a variety of countries, landscape types, sectors, institutions and actors. The concluding discussion then focuses on some of the implications of these early findings for both EU policy and decision-making more generally.
The EU emissions trading scheme (EU ETS) is designed to help EU member states achieve their commitments to limit or reduce greenhouse gas (GHG) emissions in a cost-effective way. It was not meant to work as a stand-alone tool but as part of the package of abatement measures across the board. It is a cap-and-trade system. Member states first impose caps on GHG emissions – initially only CO2 until 2012 – from installations in specified sectors, mainly the power sector and industry subsectors (e.g. steel, cement, glass, paper and pulp). Emissions from these sectors amount to 40% of total EU emissions. Next, they allocate allowances to installations. Each installation surrenders a number of allowances equal to the total emissions from that installation during the preceding year.
Christian Egenhofer, Asbjørn Aaheim, Darryn McEvoy, Frans Berkhout, Reinhard Mechler, Henry Neufeldt, Anthony Patt, Paul Watkiss, Anita Wreford, Zbigniew Kundzewicz, and Carlo Lavalle
Publication Date:
06-2008
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
This Policy Brief provides a first overview of the state of ADAM research that was discussed during the first ADAM-CEPS seminar on 12 October 2007. It brought together academic experts, policy-makers and the civil society to discuss adaptation issues and (preliminary) ADAM research results.
Topic:
Climate Change, Environment, and Regional Cooperation
This brief focuses on three issues that are especially important in the long-term development of the climate regime: (a) the challenge of the fragmentation of negotiations and governance systems; (b) the challenge of steering and evaluating novel types of privatised and market-based governance mechanisms; and (c) the challenge of designing architectures for global adaptation governance. These three core issues of fragmentation, privatisation and adaptation can be related to the overarching need to define the architecture of the post-2012 regime – and of any subsequent regimes that may follow a Copenhagen agreement.
Topic:
International Relations, Climate Change, Energy Policy, Environment, Privatization, Treaties and Agreements, and Governance
The annual climate change conference (COP14/CMP4) will take place in Poznań, 1–12 December 2008. This Policy Brief aims at providing a brief assessment of where we are on the road from Bali to Copenhagen, thinking ahead of Poznań in relation to the current negotiating environment and exploring the possible nature of an agreed outcome to be reached in Copenhagen at the end of 2009.
Topic:
Climate Change, Environment, and Treaties and Agreements
William C. Clark, Kira J. M. Matus, Paul T. Anastas, and Kai Itameri-Kinter
Publication Date:
06-2008
Content Type:
Working Paper
Institution:
Weatherhead Center for International Affairs, Harvard University
Abstract:
The Harvard-Yale-ACS GCI Green Chemistry Project is investigating the overall question of the circumstances under which firms can enact innovations that have both economic and environmental benefits, through a focused examination of the implementation of green chemistry. The research project has taken up three fundamental, interrelated questions: What factors act as barriers to the implementation of green chemistry? What actions can be taken by the government, academia, NGO's and industry that will help alleviate these factors? What are the policy implications of these barriers and potential actions, for all of the involved stakeholders?
Topic:
Climate Change, Energy Policy, Environment, and Science and Technology
In the past, strategic investments in our nation's transportation infrastructure—the railroads in the 19th century, the interstates in the 20th—turbocharged growth and transformed the country. But more recently, America's transportation infrastructure has not kept pace with the growth and evolution of its economy. At the precise time when the nation desperately needs to prioritize its limited investments and resources, the federal transportation program has lost focus.