Has Europe’s Emissions Trading Scheme Taken Away Countries’ Ability to Reduce Emissions?
This project evaluates two critical aspects of the EU’s Emissions Trading Scheme (ETS). Firstly, it examines the effectiveness of national climate policies that overlap with the EU-wide carbon market. Various policies implemented by member states, such as phasing out coal or promoting renewable energy, often affect emissions beyond their direct scope, creating repercussions on product prices and the carbon market. Some policies complement emissions reduction, while others inadvertently increase emissions due to their interactions with the ETS. The research aims to understand the impact, effectiveness, and unintended consequences of these overlapping policies to provide guidance for more efficient climate strategies.
Secondly, the study investigates the environmental impact of governments “cancelling carbon” by retiring carbon allowances from the market. While this approach seems straightforward in theory, the complexity of the ETS system complicates its effectiveness. Cancelled allowances may trigger mechanisms that offset their impact, affecting carbon prices and overall emissions. The project seeks to determine the practical implications of this strategy, offering insights into the necessary number of allowances to cancel to achieve specific climate goals. Ultimately, the research aims to provide actionable recommendations to enhance the effectiveness of existing climate policies, considering their interactions within the ETS and evaluating the potential costs and benefits of emissions cancellations.
Grant Result
Many individual countries pursue climate policies yet are also covered by a broader, overlapping emissions trading system. We explore when such overlapping policies help mitigate climate change, and when they are ineffective or might backfire.
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Arthur van Benthem
Associate Professor of Business Economics and Public PolicyArthur van Benthem is an expert in environmental and energy economics, exploring the economic efficiency of energy policy. He is a faculty fellow at the Kleinman Center and an associate professor of Business Economics and Public Policy at Wharton.
