EU Emissions Trading - "Hot Air" or Decreasing Emissions

In the first phase of the Kyoto Protocol starting 2008, it is intriguing for Russia to sell its emission rights via the European Emissions trading system without the obligation to lower its own emissions. As Russia’s Kyoto emission rights will be significantly cheaper than the price level of 15 euros per ton of carbon dioxide, expected for 2008 in the EU emissions trading scheme, even European companies benefit from this.

The environmental impact of such deals, however, is devastating because the article of sale is nothing more than "hot air", Russian emission rights, so to speak, that go beyond the country’s actual needs. These are the findings of a current study on Russia’s possible role in the European emissions trading conducted by the Centre for European Economic Research (ZEW) in Mannheim.

There are two main reasons why Russia would want to sell emission rights in Europe: the plentiful supply of "hot air" due to the Kyoto Protocol concluded in 1997 and the regional restriction of the EU emissions trading system. The insular solution of the EU emissions trading puts a price on carbon dioxide emissions in Europe. This price reflects the shortage of European emission rights, but not necessarily the global shortage. In regions that were granted more emission rights than actually required the price for emission rights is dwindling small. This particularly applies to Russia. The country is thus encouraged to export cheap emission rights to Europe where it can obtain a higher price.

Consequently, the European climate policy needs to make a decision. If is aims at relieving companies and consumers from the costs of climate protection, it should grant Russia access to the EU emissions trading system accepting less avoidance in the EU and a non-reduction of additional emissions in any other countries. If, on the other hand, the European climate policy indeed wants to decrease emissions, it will have to accept the fact that the European contribution to climate protection entails actual costs and should prevent the import of "hot air". However, the avoidance of emissions does not have to take place inside the EU. Climate protection costs can still be reduced by alternate flexible instruments of the Kyoto Protocol such as investments in international projects to minimise greenhouse gas emissions – especially in developing countries, but also in Russia.

Contact

Dr. Ulf Moslener, E-mail: moslener@zew.de 

Prof. Dr. Bodo Sturm, Phone   +49/621/1235-186, E-mail: sturm@zew.de