Limited versus Unlimited Flexibility
New Horizons in Environmental Economics series
Edited by Johan Albrecht
5. Supplementarity in the European carbon emission market Johan Eyckmans and Jan Cornillie 1. INTRODUCTION The European Commission’s Green Paper on greenhouse gas emission trading within the European Union (EC, 2000) advocates the use of tradable emission permits within the EU as a way of increasing the cost-efﬁciency of European climate policy. Greenhouse gas (GHG) emissions trading is one of the ‘ﬂexible mechanisms’ provided for in the 1997 Kyoto Protocol on the reduction of GHGs. The Kyoto Protocol1 stipulates that this international emissions trading mechanism can only come into action after the start of the ‘ﬁrst commitment period’, hence from 2008 onwards. The EC’s Green Paper calls, however, for installing a European GHG emissions market earlier than this, from 2005 onwards. This exclusively EU emissions market would have several advantages. First, it would give EU companies some time to get used to the permit trading system. Since Europe has little experience compared to the USA with emission permits, it is often feared that European companies would not be ready to compete on an international GHG emissions market in 2008. Second, it would give the EU an opportunity to show to the secretariat of the Kyoto Protocol some ‘demonstrable progress’ towards the achievement of the 8 per cent emissions abatement target for the European bubble. Finally, and perhaps most importantly, the EC’s Green Paper shows that this EU GHG emissions market could lead to substantial cost savings compared to uncoordinated national climate change policies. According to simulations with the PRIMES...
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