A governance perspective on the choice between "cap and trade" and "credit and trade" for an emissions trading regime

European Environmental Law Review

Volumn 16, Issue 7, 2007, Pages 191-202

  Peeters, Marjan ^a   Weishaar, Stefan ^a   de Larragán, Javier de Cendra ^a  

^a MAASTRICHT UNIVERSITY   (Netherlands)

Author keywords

[No Author keywords available]

Indexed keywords

EMISSIONS TRADING; EUROPEAN UNION; GREENHOUSE GAS; POLLUTER PAYS PRINCIPLE; TRADE-ENVIRONMENT RELATIONS;

EURASIA; EUROPE;

EID: 34547478324     PISSN: 09661646     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (62)

1. Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, O.J. 25.10.1003 L 275/32, as amended by Directive 2004/ 101/EC of the European Parliament and of the Council of 27 October 2004 amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocol's project mechanisms, (the "linking Directive"), OJ 13.11.2004 L338/18.
2. A.M. Gielen, P.R. Koutstaal., Herman R.J. Vollebergh, "Comparing emissions trading with absolute and relative targets", paper presented at the 2nd CATEP workshop on the design and integration of national tradable permit schemes for environmental protection, hosted by University College London, 25-26 March 2002.
3. 2 emission allowance allocation mechanisms, allocative efficiency and the environment: A Static and dynamic perspective", available at www.rechten.unimaas.nl/metro
4. Council Directive 96/61/EC of 24 September 1996 concerning integrated pollution prevention and control, OJ 10.10.1996 L257.
5. See for an extensive discussion of these mechanisms: David Freestone and C. Streck (eds), Legal aspects of Implementing the Kyoto Protocol Mechanisms (Oxford University Press: Oxford, 2005).
6. J..H. Dales, Pollution, Property and Prices. An Essay in Policy-Making and Economics (Edward Elgar: Cheltenham UK, 1968) (2002 re-print).
7. J.R. Nash, "Too much market? Conflict between tradable pollution allowances and the 'polluter pays principle'" [2000] Harvard Environmental Law Review, 24, pp. 465-535, at p. 508). However, for the international level he foresees that the differences in wealth between the participating countries will cause problems when auctioning emissions rights. A free allocation would then be the second best alternative, on which more easily commitment will be reached.
8. Consultation document on measures to reduce carbon emissions in the large non-energy intensive business and public sector, November 2006, www.defra.gov.uk.
9. See M. Mehling, "Emissions Trading and National Allocation in the Member States - An Achilles Heel of European Climate Policy?" [2005] The Yearbook of European Environmental Law, 5, pp. 113-157.
10. For instance, in Germany more than 50 specific administrative options were designed in order to meet the (legitimate) interests of the covered industries. See B. Schmitt-Rady, "A Level Playing Field? Initial Allocation of Allowances in Member States", in Marjan Peeters and K. Deketelaere (eds), EU Climate Change Policy - The Challenge of New Regulatory Initiatives" (Edward Elgar: Cheltenham, UK; Northampton, MA, USA, 2006) pp. 83-97.
11. V. Schyns, "How to fit benchmarks with ex-post adjustment in the present EU Emissions Trading Directive", paper presented at the 4th congress of the European Chemical Regions Network, Tarragona, Spain, 10 November 2006. The possibility that environmental certainty can be guaranteed is also mentioned in the CEPS report "Shaping the global arena. Preparing the EU emissions Trading scheme for the post-2012 period", CEPS Task Force Report no. 61, March 2007.
12. See J. Schmidt, N. Helme, J. Lee and M. Houdashelt, "Sector-based approach to the Post-2012 Climate Change Policy Architecture", Center for Clean Air Policy, August 2006.
13. New entrant is defined in Art. 3(h) of Directive 2003/87/EC as "any installation carrying out one or more of the activities indicated in Annex I, which has obtained a greenhouse gas emissions permit or an update of its greenhouse gas emissions permit because of a change in the nature or functioning or an extension of the installation, subsequent to the notification to the Commission of the national allocation plan".
14. Communication from the European Commission on guidance to assist Member States in the implementation of the criteria listed in Annex III to Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/ 61/EC, and on the circumstances under which force majeure is demonstrated, Brussels, 7.1.2004, COM (2003) 830 final.
15. See A.D. Ellerman, B. Buchner and C. Carraro, Emissions Trading in the US: Experience, Lessons and considerations for greenhouse gases (Pew Center on Global Climate Change: Arlington, VA, 2003.
16. B. Buchner, C. Carraro and A.D. Ellerman, "The Allocation of European Union Allowances: Lessons, Unifying Themes and General Principles", in Carlo Carraro, B. Buchner and A.D Ellerman (eds), Rights, Rents and Fairness: Allocation in the European Union Emissions Trading Scheme (Cambridge University Press: Cambridge, 2007).
17. Whether it constitutes a production subsidy depends on the allocation format used. If the allowances from the new entrants reserve would be auctioned, a subsidy would only exist if the auction prices are lower than the market price of allowances. This could be the case when incumbents are not authorized to take part in the auctions.
18. See M.Ahman, D.Burtraw, J.Kruger and L.Zetterberg, "A Ten-Year Rule to guide the allocation of EU emission allowances" [2007] Energy Policy 35 (3), pp. 1718-1730.
19. COM (2003)830 Final, at para. 56.
20. See M. Grubb and K. Neuhoff, "Allocation and Competitiveness in the EU Emissions Trading Scheme: Policy Overview", [2006] Climate Policy 6 (1), pp. 7-30.
21. This has indeed been the case in the first round of NAPs. See H.A.Kolshus and A. Torvanger, "Analysis of EU member state's national allocation plans", CICERO Working Paper 2005:02, 2005.
22. National Allocation Plan for the Federal Republic of Germany 2005-2007, English version, at p. 31.
23. Commission Decision of 7 July 2004 concerning the national allocation plan for the allocation of greenhouse gas emission allowances notified by Germany in accordance with Directive 2003/87/EC of the European Parliament and of the Council, C (2004) 2515/2 Final.
24. Case T-374/04.
25. 2 emission allowances 2008-2012, at p. 39.
26. Commission Decision of 16 January 2007 concerning the national allocation plan for the allocation of greenhouse gas emission allowances notified by Belgium in accordance with Directive 2003/87/EC of the European Parliament and of the Council, at p. 13
27. Ibid.
28. See K. Neuhoff et al., "Implications of announced phase II national allocation plans for the EU ETS" [2006] Climate Policy 6 (4), pp. 411-422, at p. 413.
29. Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity, OJ 30.1.1997 L27.
30. Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules of the internal market in natural gas, OJ 21.7.1998 L204.
31. This concept of perpetual allocation is however attenuated by Art. 10 of Directive 2003/87/EC, which states that member states can auction a five per cent of allowances in the first trading period, which may grow to 10% and by Art. 30.2 (c) foreseeing the possibility of further harmonizing the method of allocation, including auctioning after 2012.
32. Case 173/73 Italy v. Commission [1974] ECR 709, para. 13;
33. Case C-241/94 France v. Commission [1996] ECR I-4551, para. 19-20;
34. joined Cases T-228/99 and T-233/99, West-deutsche Landesbank Girozentrale and Land Nordrehein-Westfalen v. Commission, [2003] ECR II-435, para. 180.
35. Case T-55/99 CETM v. Commission [2000] ECR II-3207, para. 39;
36. joined Cases T-92/00 and T-103/00 Territorio Histürico de Álava v. Commission [2002] ECR II 1385, para.
37. 48, Case C-143/99 Adria-Wien Pipeline GmbH and Wietersdorfer & Peggauer Zementwerke GmbH v. Finanzlandesdirektion fuer Kaernten [2001] ECR I-8365, para. 41.
38. Case C-379/98 Preussen Elektra v. Schleswag AG [2001] ECR I-2099, para. 58, 63-65, Case T-613/97 Ufex v. Commission [2000] ECR II-4055, para. 108-110.
39. European Commission, (2003), Steunmaatregelen van de Staten N35/2003 - Nederland Systeem van verhandelbare emissierechten voor NOx, C(2003) 1761 fin, 24.06.2003.
40. The Preussen Elektra v. Schleswag AG case, para. 58-61.
41. European Commission, (2001), Steunmaatregel nr. N 550/2000 België Groenestroomcertificaten, SG(2001) D/ 290545, 25.07.2001.
42. See Art. 3(f) of Directive 2003/87/EC,
43. and Case C-41/90 Höfner and Elser v. Macroton GmbH [1991] ECR I-1979, para. 21.
44. See for example Case 730/79 Philip Morris v. Commission [1980] ECR 2671, para. 11.
45. Case 173/73 Italy v. Commission [1974] ECR 709, para. 17,
46. see also A. Evans, "European Community Law of State aid" (Clarendon Press: Oxford, 1997) at p. 77.
47. COM (2003) 830 final, at p. 12.
48. It should be noticed though, that National Allocation Plans in the EU ETS do provide for adjustment factors to introduce a dynamic component.
49. Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Arts 87 and 88 (EC) to de minimis aid, OJ 13.1.2001 L10.
50. The Philip Morris v. Commission case, para, 11;
51. Case T-214/95, Vlaamse Gewest v. Commission [1998] ECR II-717, para. 50;
52. Case T-288/97 Regione Friuli Venezia Giulia v. Commission [2001] ECR II-1169, para. 41;
53. Case T-152/99 Hijos de Andrés Molina, SA v. Commission [2002] ECR II-3049, para. 220;
54. Cases T-298/97, T-312/97, T-313/97, T-315/ 97, T-600 to 607/97, T-1/98, T-3/98 to T-6/98, T-23/98, Alzetta Mauro and Others v. Commission [2000] ECR II-2319, para. 81.
55. In joined Cases C-278/92, C-279/92 and C-280/92 Spain v. Commission [1994] ECR I-4103, para. 40, the Court clarified that the beneficiary undertaking itself does not need to engage in exports.
56. See also Case 102/87 France v. Commission [1988] ECR-4067, para. 19;
57. Case C-75/97, Belgium v. Commission [1999] ECR I-3671, para. 47.
58. R. Frank, "Microeconomics and Behaviour", 3rd Edn (Irwin McGraw-Hill: Boston, 1997) p. 412 defines x-inefficiency as a condition in which a firm fails to obtain maximum output from a given combination of inputs.
59. It should be noticed that a grandfathering system with equal rules applying in all Member States would also give rise to less concern. It would, however, still lead to potential distortions regarding the choice of historical standards and create distortions between market share winners and losers. A PSR system could give rise to distortions of the general market equilibrium if the benchmarks were not set on appropriate levels.
60. Community Guidelines on State Aid for Environmental Protection, OJ 03.03.2001 C37/3-15.
61. 2 emissions and thus do not impose extra costs on production.
62. 2 Abatement, competitiveness and leakage in the European cement industry under the EU ETS: grandfathering versus output-based allocation" [2006] Climate Policy 6 (1), pp. 93-113.