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Scanning the Options for a Structural Reform of the EU Emissions Trading System

This paper provides a comprehensive overview and analysis of different options to reform the EU Emissions Trading System (ETS). The options discussed include changes to address the rigidity of supply on the auctioning side, as well as reforms to add flexibility to free allocation. Additionally, other options that may enhance the functionality of the EU ETS are covered, drawing on examples and practices in other carbon-pricing mechanisms around the world.

It is crucial to note that any reform of the EU ETS must consist of a package of options. Taken separately, the options may very well have beneficial effects, but they would also leave intact clear imperfections in the current design. Specifically where the auctioning supply mechanism and the flexibility in free allocation are concerned, we assess multiple options in each category, and present evidence for each option. Where appropriate, we suggest complementing these reform options with additional elements (presented in section 3.3).

The aim of any structural reform should be to arrive at a set of options that forms a consistent and credible package. With this paper, we provide an evidence-based assessment of the various building blocks of such a reform.

Authors

Wegener Center at the University of Graz
Former Deputy Director of CEPS Energy Climate House & Head, Carbon Market Forum
Austrian Institute of Economic Research (WIFO)
Senior Scientist at the Environment Agency Austria
Scientist, Wegener Center at the University of Graz
Post doctoral Fellow, Institute of Finance, University of Graz