Instruments for Climate Policy

Instruments for Climate Policy

Limited versus Unlimited Flexibility

New Horizons in Environmental Economics series

Edited by Johan Albrecht

Instruments for Climate Policy focuses on economic and political aspects related to the recent proposals and the debate on limits in flexibility, and discusses EU and US perspectives on climate policy instruments and strategies. This is followed by chapters on economic efficiency and the use of flexible instruments as well as contributions to the debate on ‘when flexibility’, on the arguments behind the EU ceilings proposal and on voluntary approaches to climate policy. One of the main conclusions reached with respect to proposals for limiting flexibility is the need to evaluate simultaneously their economic, ecological and international political consequences. The authors include both important policymakers and leading academics in the area.

Chapter 4: Why did the EU propose to limit emissions trading? A theoretical and empirical analysis

Edwin Woerdman

Subjects: economics and finance, environmental economics, environment, climate change, environmental economics


4. Why did the EU propose to limit emissions trading? A theoretical and empirical analysis Edwin Woerdman 1. INTRODUCTION The Kyoto Protocol (1997) to the Framework Convention on Climate Change (FCCC) contains greenhouse gas (GHG) emissions targets for developed countries, called Annex B parties. For instance, provided that the Protocol is ratified, the European Union (EU) must reduce its emissions by 8 per cent below 1990 levels in the commitment period 2008 to 2012 (Article 3.1). To lower overall costs, the Protocol allows the Annex B parties to meet their commitments partly by trading emissions via the so-called Kyoto mechanisms.1 They can buy emission units from another industrialized country by means of international emissions trading (IET) under Article 17 or by means of a joint implementation (JI) project under Article 6, for instance in Central and Eastern Europe where emission reductions are cheaper to achieve. They can also purchase inexpensive emission credits from developing countries by means of clean development mechanism (CDM) projects under Article 12. However, the Kyoto Protocol requires that such trade shall be supplemental to domestic action (see IET Article 17, JI Article 6.1(d) and CDM Article 12.3(b)). This was agreed to prevent a situation in which the emission targets would be met solely by means of emissions trading under Articles 6, 12 and 17. The elaboration of the supplementarity provisions was one of the main reasons why governments failed to reach an agreement at the climate change negotiations of the Sixth Conference of...

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