Overlapping efforts in the EU Emissions Trading System

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Herweg, Fabian:
Overlapping efforts in the EU Emissions Trading System.
In: Economics Letters. (2020) Heft 193 . - No. 109323.
ISSN 0165-1765
DOI: https://doi.org/10.1016/j.econlet.2020.109323

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Abstract

According to the Phase IV (2021–2030) rules of the EU ETS, the total amount of emission permits allocated to firms is not fixed but endogenous. This implies that a national climate policy that overlaps with the ETS can have an impact on total aggregate emissions. Roughly speaking, if firms increase their holdings of emission permits, the total amount of permits allocated is reduced. This paper analytically investigates how an overlapping national policy affects the aggregate bank of emission permits. If marginal abatement costs are not too convex, national climate policies increase banking and thus tend to reduce overall emissions.