Germany aims to phase out coal to achieve its 2030 climate target, for which a UK-style carbon price floor is considered. But this measure comes with risks related to the uncertainty about what price level is sufficient, and the waterbed effect arising from unilateral policy under the EU-ETS....

Long-term commitment is crucial for the dynamic efficiency of intertemporal cap-and-trade programs. Discretionary interventions in such programs could destabilize the market, and necessitate subsequent corrective interventions that instigate regulatory instability (Kydland and Prescott, 1977)....