Dóra Fazekas Carbon Market Implications for new EU - UniCredit ...

environmental quality by promoting better-informed choices and lead to support for government
policy.
Research and development (R&D) is direct government spending and investment to generate
innovation on mitigation, or physical and social infrastructure to reduce emissions. Includes prizes
and incentives for technological advances.
Financial incentives are frequently used by governments to stimulate the diffusion of new, less
GHG-emitting technologies. While economic costs are generally higher than for other instruments,
they are often critical to overcome barriers to the penetration of new technologies.
Government support through financial contributions, taxation measures, standard setting and
market creation is important to promote technology development, innovations and transfer.
Substantial additional investments in, and policies for, R&D are needed to ensure that technologies
are ready for commercialization in order to arrive at stabilization of GHGs in the atmosphere, along
with economic and regulatory instruments to promote their deployment and diffusion.
There is no simple answer to decide which regulatory tool is more efficient to decrease pollution,
conventional regulation or tradable permits. Jaffe argues that it all depends on the context; and that
it is not the tool in itself (tradable permits, or command-and-control, or environmental tax, or
voluntary program) what makes a scheme environmentally efficient but the ambition of the target.
“If the emissions do not decrease quickly enough, do not blame the ETS but the decision-makers
who set too lenient an objective for the cap.” (Jaffe et al, 2002)
Given that the focus of my dissertation is the EU ETS as an economic tool targeting at reducing
GHG in the atmosphere responsible for climate change hereinafter the study focuses only on
tradeable permits schemes. Comparing market-based instruments to command-and-control
measures is already well developed in the literature and does not require another contribution.
1.2. Tradeable Permits Schemes
Tradeable permits in environmental policy are a relatively new instrument, in theory as well as in
actual policy. J.H. Dales developed the idea in 1968. Environmental economists have pointed out
that economic instruments are suitable for implementing a policy of reducing emissions of
greenhouse gases. Since the early 1970s the theoretical literature on tradable emission permits
(Montgomery, 1972; Hahn, 1984; Tietenberg, 1985; Cropper and Oates, 1992; in Hungarian:
Kerekes, 1995; Kerekes and Szlávik, 2001) has discussed the efficiency and properties of their use.
In the United States they have been in use since the mid-1970s. Since the early 1990s emissions
trading has gathered attention as an effective instrument of pollution control (Ellerman et al, 2003).
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