Current Challenges for Emission Trading Systems – ENTRACTE Policy Session at WCERE 2014 in Istanbul

The ENTRACTE project team organised a successful policy session at the Fifth World Congress of Environmental and Resource Economists (WCERE) in Istanbul on June 30, 2014. The policy session brought together leading scholars from Australia, the United States, the European Union, and China. They discussed the lessons learned druing the ENTRACTE project and upcoming challenges in their respective jurisdiction concerning the design, as well as the political embedding of emissions trading schemes.

Four Major Topics of Relevance for Emission Trading

ENTRACTE co-coordinator Professor Andreas Löschel, Research Associate at ZEW, welcomed the participating researchers and panellists, and gave an overview of the aims of ENTRACTE, first findings, and forthcoming tasks. Dallas Burtraw, PhD, Associate Director of the Center for Climate and Electricity Policy at Resources for the Future, identified in his subsequent talk four major topics of relevance for the market design of Emission Trading Systems (ETS): allocation, prices, linking, and governance. He noted that auctioning as the preferred allocation method is becoming increasingly accepted. While allocation is currently no major topic of political debate, the three remaining topics of ETS market design are still being discussed controversially. A crucial point, according to Burtraw, is that emission markets are artificial markets set up by governments. Therefore, he concluded, government intervention in those markets is less problematic than in other markets, and price floors can be important instruments to ensure functionality.

Various Designs of Emission Trading Schemes in China, Europe, and Australia

Professor Jing Cao, PhD, Associate Professor at the Department of Economics, School of Economics and Management at Tsinghua University then gave an in-depth overview of China’s pilot regional emission trading schemes and their differences in design. She illustrated how design elements, such as the included types of market participants, caused differences in trade volumes and price volatility. Professor Xavier Labandeira, PhD, Professor of Economics at the University of Vigo and the Climate Policy Research Unit at the European University Institute, as well as member of the ENTRACTE policy advisory board, then addressed the current state of discussion in Europe and the post 2020 advancement of the EU ETS. He clarified that interaction with other policy instruments and targets, also on member-state level, is crucial when aiming to understand the functionality of the EU ETS. Professor Frank Jotzo, PhD, also member of the ENTRACTE policy advisory board and Associate Professor at the Australian National University in Canberra, discussed the current state of climate policy in Australia. He emphasised the importance of politics for design choices, but he also stressed that design choices have a reverse effect and impact politics as well.

Exchange on the Lessons Learned as Key for Successful Climate Policy

The individual experiences were then exchanged in a round table discussion and the final question and answer session including the audience. This policy session showed that different lessons have been learned in different jurisdictions. Intensified exchange on lessons and evidence is key for a successful climate policy. Projects such as ENTRACTE contribute substantially to this goal. Therefore, the ENTRACTE project team will organise further platforms of exchange and meet in Italy in early 2015 to discuss overlapping policies and the consequences of their interaction for the effectiveness of the European climate and energy policy.

About ENTRACTE

On behalf of the EU Commission, the ENTRACTE project develops recommendations for making the European climate policy more effective and more efficient. The project focuses on the interactions between the different climate and energy policy instruments employed in Europe. Within the framework of the project, ZEW cooperates with institutions such as the Potsdam Institute for Climate Impact Research, the London School of Economics, and further partners from Germany, Italy, Great Britain, Ireland, Norway and the Netherlands.