› Dr. Stefan Weishaar, M.Sc., LL.M.

› Associate Professor of Law and Economics

› Faculty of Law, Department of Law and Economics

› Groningen Centre of Energy Law

Hybrid emissions trading systems: what about efficiency?

Carbon Ambition:

› Intensity targets› - 17% carbon intensity below 2005 levels by 2015› - 40 -45% carbon intensity below 2005 levels by

2020

› => Moving target• GDP growth?• Economic transition?

Instruments:

› Command and control› Natural limits

› Market based• Setting Q: ETS• Setting P: Tax

› For the NDRC (Energy Research Institute) ETS and Tax are NOT mutually exclusive!

Taxes: targeting P

› Price signal => innovation => abatement › Tax Revenue› Adjustable by law› Not protecting incumbents

› Emissions vary › Optimal tax rate requires optimal information › Effectiveness depends heavily on demand and supply

functions (price should be elastic to induce change)› Flat tax vs. Pigou

ETS: targeting Q

› Trade => lowest abatement costs › Adapt to inflation› Automatic stabilizer› Politically feasible (permits; taxes)› Common and differenciated responsibility

› Price volatility=> investment uncertainty => limited innovation

› Optimal Q requires optimal information› Windfall profits› Leakage (offsets)

L & E insights

› ETS: high admin. Costs for small installations› Tax: falt tax easily applied but suboptimal› => ETS for large, Tax for small installations

Policy goals› Primary goal: Carbon intensity per unit of GDP› Equal?: Carbon limitation &

investment/innovation

› Dynamic caps (Guangdong?)› Continuous price signal

› Could a Carbon Tax + ETS combination offer a solution?• Base price signal => innovation• (Dynamic) cap

Hybrids + efficiency?

Dr. Jiang Kejun, Director of the Energy Research Institute of the NDRC

“Carbon tax and an ETS are not mutually exclusive”

› => Inefficiencies:› Distortions of competition• ETS covered installations pay more

› Double payment for emissions?› Distortions of the abatement market› Higher administrative costs than one scheme

Other options:

› Price corridors (ETS with a price floor and ceiling)

› Govt. buys allowances back / prints allowances

› McKibbin and Wilcoxen (2002)› Significant efficiency improvements, Pizer (2002)› Easy linking, PWC (2009)

› China + financial commitment?

A solution for China?

› Substantial auctioning with a reserve price allows government to guide secondary market prices• (Dynamic) cap can be safeguarded• Price declines are short lived• Positive allowance price => investment

incentives

• Centralization (?)