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EU-ETS design seems to have satisfied interests of energy producers at the cost of energy consumers: GHG allowances at no cost

Posted by gmarkets on 27 September, 2007

The Euro­pean Commission has not been able to align the interests of all affected industries and the design of the EU-ETS particularly seemed to have satisfied the inter­ests of energy producers at the cost of energy con­sumers, wrote J Pinkse and A Kolk in European Management Journal (27/9/2007).

Passing-off prices: “To illustrate, in the first trading period (2005-2007) of the EU-ETS, allowances to emit GHGs have been allocated at no cost. This has particularly benefited energy producers because they have been able to pass through the price of these allowances to their clients, even though they did not pay for these allowances themselves. This outcome is not surprising given the fact that the energy producers’ voice has been heard most clearly in the political negotiations surrounding the EU-ETS. Nevertheless, it leaves large consumers of energy dissatisfied, which gives them an incentive to try to change the current institutional arrangements.

Company questions: “The CDP questionnaire consists of ten open-ended questions that cover a wide array of corporate activ­ities pertaining to climate change. Since this paper concentrates on global firms emissions trading strategies, we limited our analysis to the responses to the ques­tion that specifically focuses on this issue. In this question firms are asked to disclose information on their strategy and expected costs and/or profits from trading activities in the EU-ETS, the Clean Develop­ment Mechanism and Joint Implementation, and other trading schemes (CDP, 2006). In their responses firms gave information about trading activities, but it turned out to be either not possible to estimate costs and profits from trading activities (yet) or it was con­sidered confidential, as the responses hardly contain any clear figures on this subject matter,” the authors added.

Reference: Pinkse, J. and Kolk, A., ‘Multinational Corporations and Emissions Trading’; European Management Journal (2007)

Erisk Net, 27/9/2007

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