Emissions Trading in Europe – Negative Impact on Companies Considerably Weaker than Expected – Most Appropriate Instrument to Achieve Kyoto Targets

The European Emissions Trading System (EU ETS) initiated in 2005 does not entail any significant deterioration of the competitive situation of those companies obliged to participate. Furthermore, the number of jobs is not expected to drop substantially as feared by the critics.

Compared to other political instruments for the mitigation of greenhouse gas emissions at hand, the ETS appears to be the most cost-efficient way to achieve the emission targets laid down in the Kyoto Protocol the European Union agreed to transpose. These are the findings of a close examination of existing studies and model simulations on the effects of the ETS conducted by the Centre for European Economic Research (ZEW) in Mannheim on behalf of the World Wide Fund for Nature (WWF).

Signing the internationally binding Kyoto Protocol, the EU committed itself to reduce their greenhouse gas emissions by eight per cent between 2008 and 2012. This target, however, cannot be reached by means of company initiatives only. The government has to intervene and rather draw on statutory regulation instruments such as rules, prohibitions or fiscal measures as, for instance, an environmental tax. The studies examined by ZEW show that these instruments are by far more cost-intensive than the international EU Emissions Trading System, which, from an economic point of view, appears to be the best option.

The examined studies furthermore suggest that the ETS, a marked-based regulatory mechanism, offers the companies more flexibility than other measures. Besides, emission allowance trading as part of the ETS may provide incentives for innovation: Each reduction of emissions is translated to certificates no longer required by the company, which then has the opportunity to resell them. Overall, the studies examined by ZEW illustrate that the introduction of the ETS does not involve any significant loss of competitiveness among the participating enterprises in Europe, as feared particularly by the industry. So far, an overall balance regarding all participating branches has shown no sign of substantial job losses due to the ETS. By no means does it thus deserve the name "job killer" as it has recently been referred to.

Contact

Dr. Klaus Rennings, Phone: +49(0)621/1235-207, E-mail: rennings@zew.de