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Hybrid emissions trading systems:
what about efficiency?
› Dr. Stefan Weishaar, M.Sc., LL.M.
› Associate Professor of Law and Economics
› Faculty of Law, Department of Law and Economics
› Groningen Centre of Energy Law
Carbon Ambition:
› Intensity targets
› - 17% carbon intensity below 2005 levels by 2015
› - 40 -45% carbon intensity below 2005 levels by 2020
› => Moving target
• GDP growth?
• Economic transition?
Instruments:
› Command and control
› Natural limits
› Market based
• Setting Q: ETS
• Setting P: Tax
› For the NDRC (Energy Research Institute) ETS and
Tax are NOT mutually exclusive!
Taxes: targeting P
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Price signal => innovation => abatement
Tax Revenue
Adjustable by law
Not protecting incumbents
› Emissions vary
› Optimal tax rate requires optimal information
› Effectiveness depends heavily on demand and supply
functions (price should be elastic to induce change)
› Flat tax vs. Pigou
ETS: targeting Q
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Trade => lowest abatement costs
Adapt to inflation
Automatic stabilizer
Politically feasible (permits; taxes)
Common and differenciated responsibility
› Price volatility=> investment uncertainty => limited
innovation
› Optimal Q requires optimal information
› Windfall profits
› Leakage (offsets)
L & E insights
› ETS: high admin. Costs for small installations
› Tax: falt tax easily applied but suboptimal
› => ETS for large, Tax for small installations
Policy goals
› Primary goal: Carbon intensity per unit of GDP
› Equal?: Carbon limitation & investment/innovation
› Dynamic caps (Guangdong?)
› Continuous price signal
› Could a Carbon Tax + ETS combination offer a
solution?
• Base price signal => innovation
• (Dynamic) cap
Hybrids + efficiency?
Dr. Jiang Kejun, Director of the Energy Research
Institute of the NDRC
“Carbon tax and an ETS are not mutually exclusive”
› => Inefficiencies:
› Distortions of competition
• ETS covered installations pay more
› Double payment for emissions?
› Distortions of the abatement market
› Higher administrative costs than one scheme
Other options:
› Price corridors (ETS with a price floor and ceiling)
› Govt. buys allowances back / prints allowances
› McKibbin and Wilcoxen (2002)
› Significant efficiency improvements, Pizer (2002)
› Easy linking, PWC (2009)
› China + financial commitment?
A solution for China?
› Substantial auctioning with a reserve price
allows government to guide secondary market
prices
• (Dynamic) cap can be safeguarded
• Price declines are short lived
• Positive allowance price => investment
incentives
• Centralization (?)