Assessing Emission Regulation in Europe : An Interactive Simulation Approach

Implementation of an EU-wide emissions trading system by means of National Allocation Plans is at the core of the European environmental policy agenda. EU Member States must allocate their national emission budgets under the EU Burden Sharing Agreement between energy-intensive sectors that are eligible for European emissions trading and the remaining segments of their economies that will be subject to complementary domestic emission regulation. We show that such hybrid emission regulation may lead to substantial excess costs compared to a comprehensive emissions trading system covering all segments of the economy. Furthermore, the hybrid system associated with the current design of National Allocation Plans is likely to discriminate against sectors that are not part of the emissions trading scheme. The interested reader can make use of a web-based interactive simulation model in order to specify and evaluate alternative settings of the EU emissions trading system