Emissions trading reform could result in billions of euros for European countries

05/23/2014 - With a reform of the European Emissions Trading System (EU ETS), the economically troubled countries of southern Europe could increase their revenues by several billion euros per year while also increasing their competitiveness. This was the finding of an analysis conducted by the Mercator Research Institute on Global Commons and Climate Change (MCC) headed by Ottmar Edenhofer, chief-economist of the Potsdam Institute for Climate Impact Research. It was one of the issues debated at an international workshop in Berlin under the title "Closing the carbon price gap: public finance and climate policy", chaired by Edenhofer.
Emissions trading reform could result in billions of euros for European countries
Lignite open pit mining and power plant. Photo: thinkstock

The calculation estimates that for instance Greece could see its budget increasing from 150 million euros to 2.7 billion euros - enough to avert having to take on new debt. Spain stands to gain 6.2 billion euros and Italy 6.9 billion. For the European Union as a whole, the current revenues of 3.55 billion could rise to about 64 billion euros. “Especially in southern Europe, several states are so deeply in debt that their finance ministers would do well to put a higher price tag on carbon instead of taking the familiar route of taxing labor or capital,” says Edenhofer. “Eventually, this could also improve the international competitiveness of these countries. This applies especially to countries that are having difficulties to actually collect nominal taxes on labor and capital due to sizeable informal sectors in their economies.”

Such a reform of the EU ETS would need to include the following three main changes: One, the minimum price for an allowance should not go below 20 euros per tonne. Two, emissions trading would have to be expanded within the transport and building sectors. And three, the volume of free allocations of allowances would have to be considerably reduced. As a result, about 80 percent of allowances could likely be auctioned, instead of the current 40 percent.


Weblink to MCC: http://www.mcc-berlin.net/en/topnews/reform-of-eu-ets.html

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