Johanna Cludius

Implications of announced phase II national allocation plans for the EU ETS

Abstract We quantified the volume of free allowances that different national allocation plans proposed to allocate to existing and new installations, with specific reference to the power sector. Most countries continue to allocate based on historic emissions, contrary to hopes for improved allocation methods, with allocations to installations frequently based on 2005 emission data; this may strengthen the belief in the private sector that emissions in the coming years will influence their subsequent allowance allocation. Allocations to new installations provide high and frequently fuel-differentiated subsidies, risking significant distortions to investment choices. Thus, in addition to supplying a long market in aggregate, proposed allocation plans reveal continuing diverse problems, including perverse incentives. To ensure the effectiveness of the EU ETS in the future, the private sector will need to be shown credible evidence that free allowance allocation will be drastically reduced post-2012, or that these problems will be addressed in some other way.

Distributional Effects of the Australian Renewable Energy Target (RET) through Wholesale and Retail Electricity Price Impacts

The Australian Renewable Energy Target (RET) has spurred considerable investment in renewable electricity generation, notably wind power, over the past decade. This paper considers distributional implications of the RET for different electricity customers. Using time-series regression, we show that the increasing amount of wind energy has placed considerable downward pressure on wholesale electricity prices through the so-called merit order effect. On the other hand, RET costs are passed on to consumers in the form of retail electricity price premiums. Our findings highlight likely significant redistributive transfers between different energy user classes under current RET arrangements. In particular, some energy-intensive industries are benefiting from lower wholesale electricity prices whilst being largely exempted from contributing to the costs of the scheme. By contrast, many households are paying significant RET pass through costs whilst not necessarily benefiting from lower wholesale prices. A more equitable distribution of RET costs and benefits could be achieved by reviewing the scope and extent of industry exemptions and ensuring that methodologies to estimate wholesale price components in regulated electricity tariffs reflect more closely actual market conditions. More generally, these findings support the growing international appreciation that policy makers need to integrate distributional assessments into policy design and implementation.

The Incidence of the European Union Emissions Trading System and the Role of Revenue Recycling: Empirical Evidence from Combined Industry- and Household-Level Data

We calculate the expected incidence of the European Union Emissions Trading System (EU-ETS) using industry and household-level data. By combining data on direct CO2 emissions by production sector from the German Environmental Account with the German Input-Output Accounts, we calculate the CO2 intensity of each sector covered by the EU-ETS. We focus on the impact of price increases in the electricity sector, both directly in the form of higher electricity bills for consumers and indirectly through products that use electricity as an input to production. Taking into account behavioral effects derived from an estimated consumer-demand system, we provide incidence calculations on the basis of the German Income and Expenditure Survey for the year 2008 data updated to 2013. We confirm the ex-ante expected regressive effect, which is, however, both rather small in magnitude and can be offset and even more than offset by revenue recycling, in particular the reduction of social security contributions on labor income.