› Dr. Stefan Weishaar, M.Sc., LL.M. › Associate Professor of Law and Economics › Faculty of Law, Department of Law and Economics › Groningen Centre of.

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Presentation transcript:

› 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 Hybrid emissions trading systems: what about efficiency?

Carbon Ambition: ›Intensity targets ›- 17% carbon intensity below 2005 levels by 2015 › % 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 ›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 ›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 (?)