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The unintended consequences of the EU ETS cancellation policy

Kenneth Bruninx, Marten Ovaere, Kenneth Gillingham () and Erik Delarue

MPRA Paper from University Library of Munich, Germany

Abstract: With the Phase 4 cancellation provision, the cumulative emissions cap of the EU ETS has become dependent on the amount of surplus allowances and future emissions abatement costs. In this paper, we discuss how the design of the market stability reserve greatly increases uncertainty over cumulative emissions and implies that there will be more cancellation when future abatement is more costly, making the policy more stringent when the cost of compliance is higher. Moreover, we illustrate how overlapping policies may lead to paradoxical effects on cumulative emissions.

Keywords: European Emission Trading System; Market Stability Reserve; Cancellation; Waterbed; Marginal Abatement Cost (search for similar items in EconPapers)
JEL-codes: L5 L6 L94 L98 Q4 Q5 Q52 Q54 Q58 (search for similar items in EconPapers)
Date: 2019-10-09
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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