 Raising climate ambition in emissions trading systems: The case of the EU ETS and the 2021 reviewResource and Energy Economics, 2022, vol. 68, issue C Abstract: We provide a quantitative assessment of policy options to inform the 2021 review of the EU Emissions Trading System (ETS) and raise climate ambition. We use a permit trading model in which firms utilize rolling finite planning horizons, which replicates historical price and banking developments well compared to an infinite horizon. When firms have bounded foresight, indirectly raising ambition through the Market Stability Reserve (MSR) is not equivalent to directly raising ambition through the emissions cap trajectory. Leveraging the MSR turns out to be efficiency improving as it compensates for firms’ bounded foresight by frontloading abatement efforts. We analyze the MSR interaction with the cap trajectory to exploit synergies and minimize the cost of raising ambition. We also provide a comparative assessment of a complete suite of changes in the MSR parameters. Whatever its parameters, MSR-induced resilience to demand shocks remains limited by design: the MSR acts more as an unconditional price support provider than as a responsive price stabilizer. Keywords: Emissions trading; Rolling horizon; Market stability reserve; EU ETS; Climate ambition (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:68:y:2022:i:c:s0928765522000173 DOI: 10.1016/j.reseneeco.2022.101300 Access Statistics for this article Resource and Energy Economics is currently edited by J. F. Shogren and S. Smulders More articles in Resource and Energy Economics from Elsevier |
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