Carolyn Fischer, Dallas Burtraw, David Langlet, Kati Kulovesi, Michael A. Mehling, Leonie Reins, Åsa Löfgren, Lars Zetterberg, Stefan Weishaar, Harro van Asselt
26(2) Columbia Journal of European Law (2020): 1-34
While emissions trading can be an effective and cost-efficient policy instrument to reduce emissions of greenhouse gases, the effectiveness and political sustainability of emissions trading systems can be challenged by allowance price variations. We assess whether a reserve price in allowance auctions would contribute to the stability and effectiveness of a cap-and-trade system. We discuss the economic consequences of implementing an auction reserve price and assess the legal feasibility of introducing such a price in the European Union Emissions Trading System. We show that the introduction of such a reserve price could make a meaningful contribution to the political and legal durability of the EU ETS, while not being likely to weaken the binding nature of the cap. The measure’s economic effects could address concerns that have been raised about the EU ETS and overlapping energy and climate policies. We find that an auction reserve price could, if carefully designed, complement and improve the current Market Stability Reserve, and that it could help alleviate the political concerns with allowance price shocks and sudden devaluations, thereby improving the EU ETS.
Keywords: EU ETS; auction reserve price; cap-and-trade; allowance price stability; Market Stability Reserve; EU climate policy