Endogenous cap reduction in Emission Trading Systems

Thomas Grebel, Rohidul Islam

Since its introduction, the European Emissions Trading Scheme (EU ETS) has been struggling with an oversupply of emission allowances and a highly volatile allowance price. One reason for the price decline is technological progress and ist demand-reducing effect, which is only partially taken into account in the system. We propose a simple benchmark approach to endogenously adjust the supply of allowances to technical progress. Using a non-parametric benchmark approach, we measure the required adjustment of the allowance supply to avoid a technologyinduced price decline and to maintain the incentive to invest in low-carbon technologies.

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Year of publication:	December 2022
Authors:	Grebel, Thomas ; Islam, Rohidul
Publisher:	Ilmenau : Ilmenau University of Technology, Institute of Economics Ilmenau : Universitätsbibliothek
Subject:	EU ETS \| emission allowances \| Data Envelopment Analysis \| endogenous adjustment of supply \| technological change \| yardstick competition \| Emissionshandel \| Emissions trading \| Data-Envelopment-Analyse \| Data envelopment analysis \| Theorie \| Theory \| EU-Staaten \| EU countries \| Anreizregulierung \| Incentive regulation \| Technischer Fortschritt \| Technological change \| Treibhausgas-Emissionen \| Greenhouse gas emissions \| Europäische Union \| Umweltzertifikathandel \| Anpassung \| Angebot