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

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I. INTRODUCTION Scientists from all over the world are recognizing that the Earth is becoming warmer than ever before. The lion’s share of these scientists are worried that increasing temperature is closely related to our use of fossil fuel, and the emissions of anthropocentric greenhouse gases, especially carbon dioxide. The Intergovernmental Panel on Climate Change (IPCC, 2001 and 2007) stated that mankind plays an important role for the climate on Earth. The problem of climate change, its causes and consequences have recently gained international public and political attention. Climate change is considered a new form of externality, which defers from traditional externalities in the sense that it is global; both its causes and consequences have global impacts. Presenting the problem and scale of the climate change issue is however out of the focus of this study. My dissertation aims at presenting and analyzing one of the possible solutions to combat global warming, an economic tool, the trading of emissions allowances. This dissertation aims at presenting the pilot phase of the European Union Emissions Trading Scheme between 2005 and 2007. The EU ETS is the first cap-and-trade initiative worldwide to mobilize market forces to decrease carbon emissions. From 2005 the carbon trading system is in operation in the twenty-seven Member States of the European Union aiming to comply with the Kyoto targets. The widespread foreign opinion (Holzinger-Knoepfel, 2000; Baker, 2001; Soversoki, 2001; Homeyer, 2001, 2004; Kramer, 2002; Jehlicka-Tickle, 2002, 2004; Schreurs, 2004; Mullins, 2005; Wilkinson et al, 2004) is that new EU Member States lack the market-based economy necessary for the successful operation of such a system. So looking at the reality is rather interesting. Whether it could be implemented in a country –Hungary– that lacks the necessary institutions, experience with markets and practices? This doctoral dissertation: (1) has certified that emissions trading as a market-based environmental tool works well in a country that lacks the necessary institutions, experience with markets and practices. (2) has analyzed the impacts of the EU CO2 Emissions Trading Scheme on Hungarian companies during the pilot phase. (3) has quantified the Hungarian companies involvement into the EU CO2 emissions allowance market. 6
Neither the theory nor the empirical assessment of emissions trading for new Member States has been fully examined in the literature. Ürge-Vorsatz and Miladinova (2005) mention some general concerns about the viability of market-based instrument in Eastern Member States, however this dissertation aims to present that such a market-based instrument might work equally efficient in countries lacking market-based experiences and institutions. Moreover until now only projections have been made, analyzing the future. This study analyzes the effectiveness and efficiency of allowance trading ex-post. This is one of the first attempts to examine – both quantitatively and qualitatively – the impacts of allowance trading on one new Member State based on actual market data. In November, 2007 I joined the international research program, the Association for Promoting Research on Carbon Economy (APREC) 1 , which is a non-profit association based in Paris, France. This research program provides the ex-post evaluation of the European CO2 market; it is aimed at improving the understanding of the EU ETS. The structured database used in this dissertation was due to my participation to the team. Research methodology The research methodology of this dissertation does not follow previous stochastic, simulator and modeling approaches. For conducting a statistical analysis, the number of Hungarian participants – around two hundred and fifty installations – is not representative. Thus the impacts of the new carbon regulation on Hungarian installations covered by the scheme were revealed by a qualitative analysis. Carbon allowance transactions in Hungary during the pilot phase were examined through quantitative analysis. The first step of the analysis was to gather data – Hungarian carbon emissions, allocation amounts and allowance transactions needed to be quantified. For this the systems and database of the following institutions were used: • euets.com carbon stock exchange • Community Independent Transaction Log (CITL) • European Environment Agency (EEA) • Hungarian Ministry of Environment and Water, Climate Change and Energy Unit 1 APREC has been implemented by an international research team composed of experts at the Center for Energy and Environmental Policy Research (CEEPR) at the Massachusetts Institute of Technology (MIT), the University College Dublin (UCD), and the Mission Climat of Caisse des Dépôts, in collaboration with the Université Paris-Dauphine, the International Energy Agency (IEA), the Öko- Institut in Berlin and the Centre International de Recherche sur l'Environnement et le Développement (CIRED) in Paris. 7
Page 1 and 2: PhD Program in Management and Busin
Page 3 and 4: List of figures Figure 1. Optimal l
Page 5: „If you want to understand today,
Page 9 and 10: Table 1. Installations receiving th
Page 11 and 12: oth on national and corporate level
Page 13 and 14: 1. Climate Change Regulation The fi
Page 15 and 16: approaches, activities that are not
Page 17 and 18: In Europe the United Kingdom and De
Page 19 and 20: (2) Allocating emission rights is d
Page 21 and 22: Figure 2. The cap determines the ma
Page 23 and 24: Table 5. Tradeable certificates (ba
Page 25 and 26: value, sectoral and spatial coverag
Page 27 and 28: with their quantified reduction tar
Page 29 and 30: * * * Several authors (Hahn and Sta
Page 31 and 32: EU ETS Within the context of the UN
Page 33 and 34: establishing an international marke
Page 35 and 36: (c) Allowances can also be distribu
Page 37 and 38: • ETS in New Zealand; • Volunta
Page 39 and 40: emissions trading schemes, making i
Page 41 and 42: end of the pilot phase. Since Augus
Page 43 and 44: Figure 10. Distance to burden-shari
Page 45 and 46: Early attitude of companies towards
Page 47 and 48: high quality, differentiated produc
Page 49 and 50: investments needed in the industry.
Page 51 and 52: 3.2. Emission Trading in the new EU
Page 53 and 54: environmental benefits at a relativ
Page 55 and 56: well below their Kyoto target (EEA,
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lawsuits against the Commission for
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The most active countries to host J
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Figure 14. Hot air as supply for AA
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There have been three proposals on
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transparency of AAU transfers; redu
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Figure 18. Tradeable Hungarian AAU
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“Think Globally, Act Locally” I
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At the same time, this relatively f
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processes on the whole act a sink,
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directly from CO2 emissions are ess
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1.2. A Review of the Hungarian Lite
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2. Introducing the EU ETS in Hungar
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databases containing common data el
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instances where inconsistent decisi
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emissions each calendar year Non-tr
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is found to be in order, they may s
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economy to a market economy, as is
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the EU ETS. Many observers believe
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Emissions allowances to be allocate
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2005 2006 2007 Installation Alloc.
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Finance is putting much of the reve
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conclusion. It is safe to conclude
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allowance surplus, and then increas
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agent. 23 Denmark sold 2,762 thousa
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and Water prepared its proposal on
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What was the reason for this anomal
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considered a “transfer.” Apart
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When allowances are recognized as g
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provision is to be formed against t
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the model shall be supplemented wit
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Participants of the Hungarian EU ET
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program, full sets of emissions dat
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Figure 27. The Concentration of the
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Figure 30. The Hungarian EU ETS mar
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Figure 32. Positions of Hungarian E
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Figure 40 below shows the allocatio
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3.2. The Impact of the EU ETS on Hu
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interviews, that companies looked u
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neither emissions-reduction targets
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was considered, since they all obta
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spillover effect; this, however, co
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During the pilot period, Hungarian
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to comply shall have their names pu
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eact efficiently to regulations. Th
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ensuring great enough profit, it sw
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combined with an internal price tha
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Were Emissions Actually Reduced? Co
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column) and the verified emissions
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Figure 38. Hungarian reference peri
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* * * The effects of the EU ETS on
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(2) Transfer account of allowances,
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In an EU-context, Hungary held its
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installations the author spoke to w
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Companies, which were certain of th
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Figure 42. Hungarian transactions d
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phase. CITL Data The transaction da
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International Transfers The author
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Based on these numbers, it may be c
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The two right-hand side columns in
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sales, and how much was accounted f
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the CITL only contains data on wher
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approximately two-fifths of the vol
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(3) Installations that had shut dow
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production, one-fifth represented t
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IV. EXPERIENCES OF THE EU ETS PILOT
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starting in 2012, the European Unio
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originally allocated. Based on thes
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economic development rather than as
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Hungary has still to learn to opera
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Appendix I. - Questionnaire 3.c. Cl
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Had surplus but did not sell EUAs ,
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Appendix III. - Accounting Aspects
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Appendix V. - Overview and main fea
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Appendix VII. - Foreign emission al
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Hungária Cementipari Rt. 2006 HU 5
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Reductions Clean Development Mechan
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Linking Directive from project acti
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VII. REFERENCES Ahman, M. - Burtraw
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Burtraw, D. - Palmer, K. - Bharvirk
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EEA (2006): Greenhouse gas emission
Page 217 and 218:
Hahn, R. - Stavins, R. (1999): What
Page 219 and 220:
Kaderják, P. (1997): Economics for
Page 221 and 222:
Montero, J. P. (1997): Marketable P
Page 223 and 224:
Philibert, C. (2006): Certainty ver
Page 225 and 226:
Tietenberg, T. (1992): Relevant Exp
Page 227 and 228:
Woerdmann, E. (2003): Developing ca
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Hungarian law - Hungarian governmen
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Oxford University Press, USA http:/
Page 233:
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