پارتیشن بندی استراتژیک از کمک هزینه انتشار تحت طرح انتشار تجاری اتحادیه اروپا

The EU Emission Trading Scheme (ETS) is breaking new ground in the experience with emission trading regimes across multiple jurisdictions. Since the EU ETS covers only some industries, it implies a hybrid emission control scheme where EU member states must apply complementary domestic emissions regulation for the non-trading sectors of their economies in order to comply with their national emission reduction targets. The EU ETS thus opens up for strategic partitioning of national emissions budgets by the member states between trading and non-trading sectors. In this paper we examine the potential effects of such strategic behavior on compliance cost and emissions prices. We show that concerns on efficiency losses from strategic partitioning are misplaced. In turn, our analysis implicitly indicates significant political economy forces behind EU climate policy, as both cost-effective and strategically motivated partitioning of national emission budgets are far off from the actual break-down between trading and non-trading sectors.

Over the last two decades emissions trading has become increasingly popular as an environmental policy instrument for air pollution control. The central advantage of emissions trading is that firms can flexibly choose to meet their targets, thereby achieving in principle the lowest overall cost for an aggregate emissions cap. In a historical context, the U.S. sulfur dioxide (SO2) cap-and-trade program initiated in the mid 1990s under the Clean Air Act Amendments is considered as a successful “Grand Policy Experiment” proving substantial economic efficiency gains of market-based emission control policies over command-and-control policies, i.e., predetermined technologies or standards (Stavins, 1998). Emissions trading can provide particularly high efficiency gains in climate change mitigation: carbon dioxide (CO2) and other greenhouse gases have the same effect for global warming wherever they are emitted and abatement costs differ dramatically across sources. Given the considerable potential for cost savings (Weyant, 1999), where-flexibility through emissions trading became a condition-sine-qua-non for the adoption of the Kyoto Protocol in 1997. Striving for cost-effectiveness of its climate policy, the European Union (EU) has launched an EU Internal Emission Trading Scheme (EU ETS) for emission-intensive installations as the central pillar to comply with the Kyoto Protocol (EU, 2003a and EU, 2004). The EU ETS was established in 2005 and entered its second phase in 2008. As the first large-scale international greenhouse gas (GHG) trading program, the EU ETS represents a landmark environmental policy. To date the EU ETS covers more than 12,000 installations in 6 major industrial sectors across 27 EU countries. Each EU country must partition its national emissions budget under the Kyoto Protocol between sectors covered by the EU ETS and the rest of the economy within the so-called national allocation plans (NAPs). The EU ETS thus implies a hybrid regulation scheme as sectors (e.g., households or transport) that are not covered require complementary regulation in each EU member state to comply with the national emission reduction targets under the Kyoto Protocol. Given its size and institutional complexity, the EU ETS has been referred to as the “Grand New Policy Experiment” for market-based mitigation programs (Kruger and Pizer, 2004). In fact, the performance of the EU ETS may be pivotal for the prospects of a global greenhouse gas trading system: environmental policy makers around the world view the EU ETS as a unique opportunity to gain critical insights into the design and implementation of a market-based environmental program. The outstanding policy relevance of the EU ETS also explains the huge interest of the academic community to draw viable lessons on actual experiences of emissions trading including key issues such as allowance allocation rules, banking and borrowing provisions, firm-level market power, provisions for monitoring, reporting and verification, innovation incentives, implications on competitiveness of firms and sectors, or global environmental effectiveness of unilateral climate policies, i.e., leakage (for an overview see, e.g., the symposium on the EU ETS by Ellerman et al., 2007).1 One central feature of the EU climate policy approach that has so far received little attention in the literature is the decentralized structure of emissions regulation across multiple jurisdictions. The latter may give rise to strategic behavior by governments: emission trading systems that comprise several countries, such as the EU ETS or likewise an international quota market under the Kyoto Protocol, raise a strategic question as to how many quotas or allowances a country should allocate into the trading system. A country that expects to be a net seller of allowances can find it profitable to restrict the number of allowances issued such as to raise the equilibrium price of allowances in the market. If an emission trading market only covers a subgroup of domestic emissions—as is the case for the EU ETS—the relevant question is how to partition the national emissions cap on the sectors within and outside the trading system: when a large net seller reduces its number of allowances in order to raise the price of allowances, it simultaneously increases the emissions quota available for its non-trading sectors, reducing the marginal abatement costs there. Consequently, we end up with different marginal abatement costs across countries in the sectors outside the EU ETS. This paper investigates the policy relevance of strategic partitioning of emission allowances in the context of actual and prospective EU climate policies: to what extent can national allocation plans as submitted by EU member states for the Kyoto commitment period 2008–2012 be traced back to strategic (game-theoretic) behavior? How big is the strategic incentive for a single EU member state to alter or delay its national allocation plan? What is the overall magnitude of efficiency losses through strategic partitioning of emission allowances and may this serve as a strong argument for the EU Commission's proposal to centralize emission allocation at the EU level from 2012 onwards (EU, 2008)? We address these questions with a numerical model of the European carbon market after laying out the basic strategic options in a stylized theoretical model. Based on our quantitative results we conclude that concerns on efficiency losses from strategic partitioning of emission allowances under the current EU climate policy regime are misplaced. If all EU member states were to behave strategically in a Nash–Cournot manner, or if there is a Stackelberg leader (where the other countries act as followers playing a Nash–Cournot game), the outcome of strategic partitioning is close to the cost-effective cooperative trading system including all sectors and countries. This result follows from the large number of EU member states (with sufficiently large shares in overall EU emissions) and limited scope of terms of trade effects related to the price of emissions only. Strategic partitioning by all countries has only minor effects on total compliance cost and the price of tradable emission allowances. However, compared to the cost-effective outcome, marginal abatement costs in the non-trading sectors become markedly differentiated and more abatement takes place in the old EU member states that are importers of emission allowances. Single countries can nevertheless have non-negligible impacts on their specific compliance cost and the allowance price in the EU ETS if the reference point for strategic partitioning of a single country is the remaining countries’ actual NAPs approved for the second ETS trading phase from 2008 to 2012: the reason is that these allocation plans will lead to drastic overall efficiency losses as compared to a cost-effective comprehensive EU cap-and-trade system since the partitioning of national emissions budgets based on actual NAPs leads to huge differences between the harmonized carbon value in the trading sectors and the marginal abatement costs in non-trading sectors as well as to drastic differences of marginal abatement costs across non-trading sectors in different EU member states.2 Individual states then will derive larger benefits already from unilateral adjustment of their NAPs by moving towards a more cost-effective partition that equates marginal abatement cost of their non-trading sectors with carbon value of the EU ETS—there is only little to gain for the individual country, however, by deviating from the cost-effective partition in an attempt to manipulate the ETS allowance price. Overall, our numerical analysis suggests that market power in the context of the EU ETS turns out to be not a critical issue policy makers should be worried about. Our game-theoretic investigation is complementary to previous empirical analyses of the national allocation plans. The latter stress that allowance allocation to the trading scheme has been quite generous compared to a cost-effective strategy, indicating that lobbying from industries has been influencing the member states’ NAPs. This has been particularly the case in the first phase, but also applies to some degree in the second phase (e.g., Böhringer et al., 2006, Betz et al., 2006 and Neuhoff et al., 2006, Anger et al., 2008). Our analysis clearly confirms the political economy forces behind EU climate policy, as strategically motivated NAPs are far off from the actual NAPs. Starting from the seminal paper by Hahn (1984), there is a large literature on market power and emissions trading. Contrary to our setting, the bulk of the literature focuses on strategic behavior among firms that are covered by the emission trading system, and not on strategic allocation of quotas into the system (see, e.g., Misiolek and Elder, 1989; Hagem and Westkog, 1998 and Eshel, 2005). Strategic behavior in the quota market has been widely discussed and analyzed in relation to Russia's dominant position in the international quota market (under Kyoto), see, e.g., Böhringer and Löschel, 2003; Maeda, 2003; Hagem and Mæstad, 2006; or Böhringer et al., 2007. Being a large seller of quotas, it may be profitable for the country to restrict the export of quotas. This would imply that marginal abatement costs in Russia are below the international quota price, and it is even possible that Russia finds it optimal not to use all its quotas. Viguier et al. (2006) investigate a strategic game between four EU countries that can influence the EU-wide emissions trading regime through the initial allocation of emission allowances across economic sectors. Opposite to our analysis, they do not analyze the full continuum of allowance partitioning but focus on the choice between four different discrete allocation rules (such as grandfathering based on historical emissions). Dijkstra et al. (2008) analyze theoretically how expansion of an emission trading system can affect different countries with asymmetric abatement costs, and conclude that some countries can be worse off. The remainder of our paper is organized as follows. In Section 2, we present an analytical framework and lay out strategic considerations with respect to the partitioning of emission allowances. In Section 3, we briefly describe our numerical model for the EU carbon market that is used to investigate our theoretical propositions based on empirical data. In Section 4, we present policy scenarios and discuss simulation results. In Section 5, we conclude.

ThedecentralizedEUETSopensupforstrategicpartitioningofemissionallowancesbythemember states. Based on simulations with a partial equilibrium model of the EU carbon market, we have examined the potential effects of such strategic behavior on carbon value and abatement costs. We have found that strategic partitioning of all EU member states has only minor effects on total compliance cost and the price of tradable emission allowances as compared to a cost-effective outcome with comprehensive competitive emissions trading. When we refer to the policy practice of partitioning asevident in thenationalallocation plans, single countriescan havesome markedimpact on the allowance price in the EU ETS: given the actual—rather cost-ineffective—NAPs by other countries, an individual country may significantly benefit from changing its own NAP. However, most ofthebenefitcomesfromthealignmentofitsmarginalabatementcostinthenon-tradingsectorswith the EU ETS carbon value rather than the strategic manipulation of the ETS value itself. While our analysis suggest that market power turns out to be quantitatively unimportant in the contextoftheEUETS,itmaybecomeanissuewhenweconsiderlinkinginitiativesbetweentheEUETS and emission trading schemes in other countries (including the USA, Japan, or Canada). With fewer, butlargerstrategicplayers,agameinallocationofemissionallowancescouldinthatcaseleadtomore significant strategic effects than what we have found for the EU ETS. Hence, the general issue of strategic allowance allocation may become more important when we think about global trading initiatives beyond the EU ETS. In our present analysis we have only looked at the terms of trade effects related to the price of emission allowance. Obviously, climate policies in the EU will also affect prices of emission-intensive goods. Thus, member states might exploit a broader suite of terms-of-trade effects through strategicallowance allocation. While such an analysis is beyond the scope of the present paper with its partial equilibrium framework, it could provide an interesting future research topic for applied general equilibrium analysis.