Ex-ante evaluation of EU ETS during 2013-2030: EU-internal abatement

Abstract

This study investigates CO2 emission reduction within the EU resulting from the Emissions Trading Scheme (ETS) up to 2030. This is performed by constructing a baseline scenario without the ETS and assessing the impacts of the ETS, as currently designed. The results indicate that the ETS will start to impact emissions primarily after 2025 due to the prevalence of a sizable allowance surplus. The impact of approved (i.e. back-loading and 2.2% linear reduction factor (LRF)) and proposed (i.e. market stability reserve (MSR)) policy interventions and the inclusion of aviation, could accelerate the exhaustion of surplus and increase emission reductions during the investigated period. However, these measures would be insufficient to restore the scarcity of allowances and the corresponding carbon price before the start of ETS Phase IV, and the effectiveness of EU-internal abatement cannot be guaranteed until 2023. The effectiveness could be further reduced in the case of the economic shocks or the exclusion of international aviation.To restore the scarcity of allowances, other reform options are necessary. This paper extends the reasoning for the early removal of the back-loaded 900. Mtonne allowances by 2020 and broadening the scope of ETS to other sectors with potential high demand for allowances.