Drawing lessons from the unwieldy reforms of EU-ETS: Combining price and quantity management

SEMINAR

Speaker: Christian de Perthuis, Professor of Economics, Paris-Dauphine University; Head of the Climate Economics Chair

Discussant: Xavier Labandeira, Director, FSR Climate 

Video recording of the seminar

Abstract by the author

At a conference on the EU-ETS in Florence in September 2012, I recommended rebuilding the market governance, with the creation of an independent market authority in order to provide flexibility and CO2 price predictability. Five years later, the process of reforming the EU-ETS has led to more complexity, lower CO2 prices and increasing difficulties to coordinate the joint management of the EU-ETS with other climate-energy policy instruments. In particular, the market stability reserve design, due to enter into force in two years, already appears to be unsuited to correct these imbalances. Drawing lessons from this experience, my new recommendations would be to introduce a hybrid scheme with a price corridor, transforming the EU-ETS in a “quasi tax” scheme for several years. This would make the functioning of the EU-ETS more similar to operating schemes in North-America and would give new perspectives to extend carbon pricing to others sectors (e.g. road transportation and building management). The main lesson from the EU-ETS experience seems that it is quite impossible, in the current context, to coordinate a European carbon market with other policy instruments.

Christian De Perthuis is Professor of Economics at Paris-Dauphine University and Head of the Climate Economics Chair. He started his career in the agricultural sector, went on to work in leading French research and forecasting institutes and headed the ”Mission Climat” of Caisse des Dépots between 2004 and 2008. He created the Climate Economics Chair of Paris Dauphine University in 2010. His research focuses on the economics of climate change and ecological transition. Author of several articles and books, he is co-author of Green Capital (Odile Jacob, 2013, Columbia University Press, 2015) and of Le Climat, à quel prix? La négociation climatique (Odile Jacob, 2015) He chaired the «Green Tax Commission », which helped the French Government to set up a domestic carbon tax in 2014.