Frank J. Convery

Market and Price Developments in the European Union Emissions Trading Scheme

The European Union Emissions Trading Scheme (EU ETS), operating since January 2005, demonstrates that it is possible to create a market for carbon dioxide (CO2) even when there is a degree of confusion and chaos in the initial allocation and implementation process. Through this emissions trading scheme, the Ehas succeeded in producing a price signal—via the trading price for European Union Allowances (EUAs)—that does, in some limited sense, reflect the scarce capacity of the earths atmosphere to absorb more greenhouse gas emissions. This paper focuses on the key factors that have influenced the development and functioning of the EUA market. We first describe the institutional and legal framework for the EU ETS, the schemes main design features and provisions, and how these factors are likely to affect the EUA market. Next, we discuss how the EUA market has developed and operated since the establishment of the EU ETS. In particular, we describe the intermediaries that have entered the market to facilitate EUA trading, and how the size and frequency of trades have changed over time; identify the key factors that appear to have affected EUA prices; and discuss the trends in EUA trading volumes and prices. The paper also discusses the outlook for the EU ETS in the Kyoto Phase and beyond.

Reflections—The Emerging Literature on Emissions Trading in Europe

The European Union Emissions Trading Scheme (EU ETS), inaugurated in 2005, is arguably the most important application of environmental economics the world has ever seen. It has generated an important literature, focused on understanding its origins and history, the allocation of allowances, the implications of competitiveness and the distribution of costs and benefits, the extent of abatement, the economic efficiency of the scheme, the implications of the new entrant provisions, and the study of markets, trading, and finance. This article reviews the recent literature and other sources of information and data on the EU ETS; identifies some of the most interesting emerging trends and articles in the emissions trading literature, especially those that appear to have been interesting and useful to our peers in the profession; and provides some general insights concerning what the emissions trading literature has to offer to those involved in the policy process. The author used survey responses from twenty-eight scholars in the emissions trading field to help identify some of the most interesting, valuable, and prescient research on the EU ETS.

Transaction costs for firms in the EU ETS: lessons from Ireland

Until now, there has been little empirical evidence that EU Emissions Trading Scheme (ETS) transaction costs are incurred at firm level. The transaction costs (internal costs, capital costs, consultancy and trading costs) incurred by Irish firms under the EU ETS during its pilot phase (2005–2007) were measured and analysed. Evidence for the sources of transaction costs, their magnitude and the distribution of costs shows that these were mainly administrative in nature. Considerable variation in costs was found due to economies of scale, as the costs per tonne of CO2 were lower for participants with larger allocations. For the largest firms—accounting for over half the emissions—average transaction costs were €0.05 per tonne. However, for small firms, average transaction costs were €2.02—over 18% of the current allowance price. This supports the concerns that transaction costs are excessive for smaller participants. The immediate policy implication is that additional attention will be needed to address different sizes of firms, number of installations per firm, and the size of the initial allocations.

Host community attitudes towards solid waste landfill infrastructure: comprehension before compensation

One of the most controversial planning issues internationally is the siting of waste disposal infrastructure in local communities. Compensation is viewed as a possible solution to siting difficulties in many countries. However, existing empirical evidence is conflicting as to whether or not compensation-based siting has reduced opposition to such developments. Thus, before compensation policy can be considered as the solution for recognising social costs and introducing equity into the waste planning system, it is important to understand why people reject waste disposal infrastructure developments and if this rejection continues over the lifetime of facility operations. This paper utilises information gathered through surveys to examine the effects of distance, local authority consultation efforts, experience and other factors, on attitudes towards non-hazardous solid waste landfill developments in two examples of a potential and actual host communities. Our findings suggest distance proxies expectations of environmental risk in communities with no experience of living with landfill infrastructure. Community consultations by authorities are consistently important, even after a landfill has been in operation for a number of years. This suggests to policy makers to consult thoroughly and adequately before pursuing compensation policies.

Technological Change and the EU ETS: The Case of Ireland

The European Union commenced the pilot phase of the European Union Emissions Trading System (EU ETS) in 2005 with the intent to enhance the adoption of existing low-carbon technologies and the development and of new ones by putting a price on CO 2 emissions. We survey Irish EU ETS firms to study the occurrence and determinants of CO 2 emissions friendly technological change during the pilot phase (2005-2007). Despite declining emissions prices and policy related uncertainty, 48% of responding Irish firms employed new machinery or equipment, 74% made process or behavioral changes, and 41% switched fuels to some degree that contributed to emissions reductions during the pilot phase. The effect of rising energy prices on these emissions and energy saving actions should not be overlooked. In general, we find that the EU ETS was effective in stimulating moderate technological change and also raising awareness about emissions reduction possibilities.

Reflections–Energy Efficiency Literature for Those in the Policy Process

It is important for policy makers to understand the extent to which the purported benefits of energy efficiency are real, and how they can be achieved. This “reflections” aims to help the policy community understand how the literature can assist them in assessing the opportunities, challenges, and choices they face as they consider how to develop and implement an energy efficiency policy agenda. The article examines what is meant by energy efficiency, how energy performance is generally evaluated, and why energy efficiency is generally presented as such a great opportunity. This is followed by discussions of the importance of understanding market failures and addressing the external benefits of energy efficiency, and the importance of understanding prices and price expectations. The article concludes with some guidelines for designing coherent and effective energy efficiency policies. Because the article is aimed particularly at assisting policymakers, much of the discussion, especially the lessons for policy, are directed to “you,” the reader as policymaker.

Impact of Bus Priority Attributes on Catchment Area Residents in Dublin, Ireland

In many jurisdictions, political and infrastructural restrictions have limited the feasibility of road pricing as a response to urban congestion. Accordingly, the allocation of dedicated road space to high frequency buses has emerged as a second-best option. Analyses of the evidence emerging from this option emphasize the engineering and technical issues and do not systematically interrogate the customers, those in the bus catchment area that use or could potentially use the service. This paper attempts to correct for this asymmetry in focus by analyzing characteristics and preferences of users and non-users through a survey of 1,000 households for a particular quality bus catchment area in Dublin, Ireland. Preliminary findings are encouraging, both for the use of this policy instrument as one which can yield considerable consumer satisfaction, and in terms of modal share analysis, especially because the corridor under scrutiny represents a much higher socio-economic profile than Dublin or Ireland as a whole.

Reflections–Managing Uncertain Climates: Some Guidance for Policy Makers and Researchers

Climate change—and, by extension, climate policy—is beset with unknowns and unknowables. This “Reflections” article presents an overview of approaches to managing climate uncertainties, in the hopes of providing guidance for current policy decisions as well as future research. We propose the following guidance for policy makers: Treat climate change as a risk management problem; recognize that benefit-cost analysis is only the first of many steps in deciding on optimal climate policy; in assessing abatement choices, use a discount rate that declines over time; recognize the importance of framing, evidence, and connecting the dots; reward modesty. We suggest the following questions for consideration by researchers: Can we improve forecasting? Can we improve the way we address nonlinearities and possible irreversibilities? What other (sub)disciplines merit a closer look? How can we create the right incentives for updating and expanding economic damage functions and climate-economy models? What alternative decision criteria merit further exploration? What does ‘not knowing’ tell us?

Assessing the Transaction Costs of Firms in the EU ETS: Lessons form Ireland

This paper measures the transaction costs incurred by Irish firms under the European Union’s CO2 Emissions Trading Scheme (EU ETS) during its pilot phase (2005 - 2007). Our analysis provides evidence that such costs were mainly administrative in nature. We emphasize the existence of sizeable economies of scale, as the costs per tonne of CO2 were lower for participants with larger allocations. Trading costs were not significant and, hence, not trade inhibitive. Other factors, self-sufficiency in compliance and low allowance prices, played a major role in the decision whether to trade or not during this phase.

Using Bus Rapid Transit to Mitigate Emissions of CO 2 from Transport

Abstract This article investigates the role of bus rapid transit as a tool for mitigation of transport‐related carbon dioxide (CO2) emissions. We analyse a Quality Bus Corridor (QBC) implemented in Dublin, Ireland, in 1999 and estimate CO2 emissions associated with differing levels of bus priority for the period 1998–2003 and for the Kyoto commitment period (2008–12). Associated monetary values are established using CO2 prices from the European Union Emissions Trading Scheme. We find that, in the absence of a QBC, peak‐time emissions for our sample population would have been 50% higher than in the factual scenario. For the Kyoto commitment period, we find the median value of the policy implementation to be in the region of €650 000.