FEEM working papers "Note di lavoro" series
2009 .110

Abatement and Allocation in the Pilot Phase of the EU ETS


Authors: Barry Anderson,  Corrado Di Maria and Frank Convery
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Keywords: Emissions Trading Scheme, Climate Policy, Dynamic Panel Data Analysis
JEL n.: C23, O13, Q54, Q58

Abstract

We use historical industrial emissions data to assess the level of abatement and overallocation that took place across European countries during the pilot phase (2005-2007)of the European Union Emission Trading Scheme. Using a dynamic panel data model, we estimate the counterfactual (business-as-usual) emissions scenario for EU member states. Comparing this baseline to allocated and verified emissions, we conclude that both overallocation and abatement occurred, along with under-allocation and emissions inflation. Over the three trading years of the pilot phase we find over-allocation of approximately 376 million EUAs (6%) and total abatement at the member state level of 107 Mt CO2 (1.8%). However, due to over-allocation and possible uncertainty about future allocation methodologies, we calculate that emissions inflation of approximately 119 Mt CO2 (2%) occurred, resulting in emissions over the pilot phase being approximately 12 Mt CO2 (0.2%) higher than they would have been in the absence of the EU ETS.

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