Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 151: EU ETS emissions under the cancellation mechanism: Effects of national measures

Björn Carlén (), Anna Dahlqvist (), Svante Mandell () and Pelle Marklund ()
Additional contact information
Björn Carlén: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Anna Dahlqvist: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Svante Mandell: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Pelle Marklund: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden

Abstract: From 2023 onwards, allowances held in the market stability reserve above the number of allowances auctioned the previous year will be cancelled. In this paper, we analyse what consequences additional national emission reductions in the EU ETS sector will have on total emissions given this new cancellation mechanism. We show that additional national abatement measures now have the potential to reduce total EU ETS emissions. However, for this to happen, the emission reductions must take place early – before 2023 in our base case. To provide an understanding of this complex system, we present a series of extensions to show how the results are affected by, for example, future emission levels, technological development, optimising agents and speculative trading in allowances.

Keywords: EU ETS; cancellation mechanism; numerical analysis; national emission reductions

26 pages, June 20, 2018

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