Innovation impacts of tradable emission certificates

The role of design choices

In 2005, trading with greenhouse gas emissions is planned to begin in the EU. The ball will start rolling with power stations and energy-intensive industrial plants which are responsible for roughly half the EU's CO₂ emissions. In addition, emissions trading has been practised for several years in the US to reduce "classical" air pollutants such as SO₂ and NO_x.

The potential of an environmental policy instrument to influence innovation is a decisive criterion in any environmental field, but especially so in climate policy due to the long-term, cumulative character of the presumed anthropogenic greenhouse effect and to the fact that fossil fuels, responsible for the bulk of greenhouse gas emissions, are a core input of current economic activity. Therefore a considerable restructuring of economic activity is likely to be required when ambitious goals are to be met. Innovations can reduce the long-term costs of this venture considerably.

Emissions trading's potential to influence innovation is likely to depend strongly on its concrete design. Thus, issues like primary allocation of the allowances (should they be auctioned off or allocated free of charge? If the latter, what formula should be used to share them out?), treatment of plants that started operation after the start of the trading system ("new entrants") and rules for "banking" of the allowances are important. Especially regarding the prospective innovation effects of such design parameters, relatively little research has been conducted so far.

These questions are being investigated within a doctoral project funded by Energy Foundation Schleswig-Holstein, the UFZ, and the Stiftungsfonds Dresdner Bank. In addition to theoretical foundations, i.e. the application of approaches of innovation research to emissions trading, attention is focused on an analysis of the experiences under existing emissions trading systems. This has included a research stay at Massachusetts Institute of Technology (MIT), USA to conduct expert interviews. The thesis is expected to be finalised in the year 2004.

Outputs

Gagelmann, F. (2003): E.T. and Innovation − Science Fiction or Reality? An Assessment of the Impact of Emissions Trading on Innovation. UFZ Discussion Paper No.13/2003. Erscheint 2004 als Artikel in International Journal of Energy Technology and Policy.

Hansjürgens, B., Gagelmann, F. (2003): Das Handelssystem im europäischen CO₂-Emissionsrechtemarkt − Vorschläge zur institutionellen Ausgestaltung in Deutschland. UFZ-Diskussionspapier 12/2003. Erscheint 2004 in Energiewirtschaftliche Tagesfragen.

Hansjürgens, B., Gagelmann, F. (2003): CO₂-Emissionshandel − ein umweltpolitisches Instrument auf dem Vormarsch. In: Umweltwirtschaftsforum (uwf), 3/03, S. 4-8. Springer-Verlag.

Gagelmann, F., Hansjürgens, B. (2002): Der neue CO₂-Emissionshandel in der EU. In: Wirtschaftsdienst, Nr. 4/2002, S. 226-234.

Gagelmann, F., Hansjürgens, B. (2002): Climate Protection through Tradable Permits: The EU Proposal for a CO₂ Emissions Trading System in Europe. In: European Environment, Volume 12, Issue 4 (July/August 2002), S. 185-202.