Influence of market structures and market regulation on the carbon market : insights from selected emissions trading systems : final report

This report provides an overview of the main outputs of the research project Influence of market structures and market regulation on the carbon market (2018-2021). The aim of the project, commissioned by the German Environment Agency, was to gain a better understanding of the impact of market structures and regulations on the carbon market, as well as the interactions between carbon and electricity markets. The project was divided into three stages. First, the project team identified and analysed the main interdependencies between ETSs and electricity sectors with a view to distilling the requisite conditions for cost-effective mitigation driven by the carbon price. Second, the project team applied the analytical framework of step 1 to a sample of seven diverse ETS jurisdictions spanning several continents, industrialised and emerging economies, mature and new ETSs, and differing electricity sectors in terms of market design, fuel mix, and sectoral policies. Namely, California (US), Mexico, Germany, Poland, Korea, Hubei (China), and Shenzhen (China). Third, the project findings were utilised to inform decisionmakers and experts about pathways for effective carbon pricing to spur electricity sector decarbonisation. To this end, the project team organised six international virtual events over the course of the project. The results underline the high mitigation potential of ETSs when designed to deliver cost-reflective carbon prices. While this also applies to regulated sectors, interactions with electricity sector regulations and policies must be anticipated to safeguard the effectiveness of the instrument.