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Title

Combining cap-and-trade with offsets: lessons from the EU-ETS

Publication Year

2012

Author(s)
  • Trotignon, Raphael
Source
CLIMATE POLICY Volume: 12 Issue: 3 Pages: 273-287 Published: 2012
ISSN
1469-3062
Abstract

Linking a cap-and-trade with an offset mechanism has many theoretical advantages: it reduces compliance costs, extends the price signal outside the cap-and-trade, and triggers technology transfer. However, it is feared that such linking will induce outsourcing of emissions reduction at a low price and undermine the price incentive in the cap-and-trade. The EU Emissions Trading Scheme (EU ETS) is the first full-scale example of a cap-and-trade system linked to project-based mechanisms such that offsets have effectively been used by industrial installations. This article is an ex post analysis of EU ETS data for the years 2008 and 2009, and the characteristics of the link and its efficiency are evaluated. Although offsets have been much used, their use is concentrated and not very intense or frequent, which allays the fear that offsets will flood the market. Although the majority of surrendered CERs effectively come from the largest and oldest projects, the credits surrendered are similar to those available on the market. Possible factors that contribute towards inefficiency are the rules for using offsets, transaction costs affecting the participation of small installations, awareness and openness to market-based instruments, and uncertainties regarding CERs offer and demand from other markets. However, the impact on EUA equilibrium price still needs to be quantified.

Author Keyword(s)
  • cap-and-trade
  • Clean Development Mechanism (CDM)
  • EU Emissions Trading Scheme
  • flexible mechanism
  • linking
KeyWord(s) Plus

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ESI Discipline(s)
  • Environment/Ecology
  • Social Sciences
Web of Science Category(ies)
  • Environmental Studies
  • Public Administration
Adress(es)

Univ Paris 09, Climate Econ Chair, F-75002 Paris, France

Reprint Adress

Trotignon, R (reprint author), Univ Paris 09, Climate Econ Chair, 4th Floor,28 Pl Bourse, F-75002 Paris, France.

Country(ies)
  • France
CNRS - Adress(es)

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Accession Number
WOS:000304461200001
uid:/VHS3ZGP0
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