Venmans Frank UMons

Carbon intensive big companies, 40% of EU emissions Cap and trade ,8% free allocation % free allocation Cap -6,5% compared to 2005 emissions % free allocation and declining Cap in % compared to 2005 emissions

Policy evaluation by nature normative 4 main criteria (IPCC 2007), Environmental effectiveness Cost-effectiveness and cost-efficiency Distributional effects Institutional feasibility Other authors use same criteria (among others) (Baldwin 2008, Harrington et al. 2004, Konidari & Mavrakis 2007, Mickwitz 2003, Mundaca & Neij 2009, Goers et al. 2010) Criteria also justified by debates in public arena Literature review to increase external validity

Abatement (decline in emission) Over-allocation Predictability of environmental impact Environmental side-effects : carbon leakage

Cost efficiency Marginal social cost of carbon> marginal abatement cost Cost effectiveness Equal marginal abatement cost across firms Distortional incentives of free allocation Updating New entrants reserves Closure withdrawals Transaction costs Dynamic cost-efficiency: innovation Effect of carbon price volatility on low carbon investments Too much on intermediate technologies, too little on high-end abatement technologies

Transfers between countries and sectors Social distributional effects Windfall profits

AuthorSectorCarbon price (€/t CO 2 ) Cost pass-throughWindfall profit (€billion/year) Sijm et al. (2008)Electricity, EU2038% to 182% €24 to 28 B/year Lise et al. (2010)Electricity, EU to 90% €24-35 B/year Keppler & Cruciani (2010) Electricity, EU12100% exogenous€19 B/year Kara et al. (2008)Electricity, Fi, No, Sw % exogenous€ B/year for Fi €1.7 B/year for No and Sw Oberndorfer (2009) Veith et al. (2008) ElectricityCarbon price significant positive effect on stock prices Smale et al. (2006) Hourcade et al. (2008) D ly & Quirion (2008) Steel, Cement…50% or more

How the ETS gained support among the European Commission, industry and certain NGO’s Technical complexity of trading The ambigual effect of free allocation on political acceptability

Environmental effectiveness: + Economic efficiency: in the future + Cost-efficiency: - Cost-effectiveness: + and – Transaction costs: 0 to – Dynamic efficiency: - Distributional effects: - - Institutional feasibility: +

AuthorsEstimated abatementSector & countryMethodology Ellerman & Buchner (2008a) 50 to 100 Mt/yearAll sectors in EUBAU counterfactual based on NAPs Ellerman, Convery, de Perthuis (2010) 70 Mt/yearAll sectors in EUBAU counterfactual based on UNFCCC emissions Anderson & Di Maria (2010) 58 Mt/year (mean)All sectors in EUBAU counterfactual based on Eurostat aggregate emissions Delarue et al. (2010)59 to 88 Mt/yearElectricity in EUFuel switch model Ellerman and Feilhauer (2008) 29 Mt/year (-6%)All sectors in Germany BAU counterfactual based on NAP 25 Mt/year (-5%)BAU counterfactual based on UNFCCC 4.4 Mt (-1%)Electricity in GermanyFuel switch model McGuiness & Ellerman (2008) 13 to 21 Mt/yearElectricity in UKFuel switch model

AuthorsCarbon price (€/t CO 2 ) PolicyCost pass-through Leakage & competitiveness loss D ly & Quirion (2008) 20 (mean)57% free allocation 75% in EU 50% for export Exogenous EBITDA constant European output -1% Imports +2.5% Exports -2% Hourcade et al. (2008) 30Auction50% Exogenous EBIT from 15% to 10% Import ratio from 17% to 18% Smale et al. (2006)15100% free allocation 65% Endogenous EBITDA + 12% Output -2.1% FitzGerald et al. (2009) US price has significant influence on domestic price in 5 out of 7 countries Leakage exposure high Low cost pass-through Low scope for energy efficiency High share of energy expenditures