The cost of inaction - Auctioning revenues under different climate ambition scenarios for the EU Emissions Trading Scheme

Publication - November 6, 2012
Main findings
  • Compared to the reference scenario auctioning revenues increase for all coun-tries in all action scenarios, even in the backloading scenario.
  • If the EU continues with its current 20% emission reduction target until 2020, the revenue losses for European Member States will be in the range of £á2012 62 billion (compared to revenues in the 25% domestic scenario) and £á2012 78 billion (compared to revenues in the 30% domestic scenario).
  • Overall the impact of reduced auctioning quantities and higher climate targets on industrial competitiveness is very limited and will be compensated. The sec-tors concerned have enjoyed over allocation in the past. From 2013 onwards they will receive 100% free allocation (based on benchmarks). A compensation mechanism for higher electricity prices has also been established.
  • The proposal by the Commission which includes the back-loading measure is a first step forward; however, the respective amount of allowances should be back-loaded for a period of a decade or more. It would be best to retire the back-loaded allowances at the earliest point in time. This first move should be complemented by the adoption of higher reduction targets since previous re-search has clearly shown that a stand-alone back-loading approach will not be sufficient to solve the surplus problem and restore a robust CO2 price signal.
  • Considering that the EU ETS Directive includes special provisions on redistribu-tion designed to support Central and Eastern European countries, these Mem-ber States would benefit more (compared to other Member States) from an in-crease in auctioning revenues even without introducing additional redistribution mechanisms under the ETS.

20121106 RP ETS - Costs of Inaction report 2