ENTRACTE Policy Brief on EU Climate Policy Insights and Interactions

September 30, 2015

As an outcome of the ENTRACTE final conference in Brussels organised by its project partner EnvEcon at the end of September 2015, this policy brief offers insights relating to the future of European climate policy, including the following selected headline messages from the ENTRACTE research:

  • Policy interactions are numerous and unavoidable. They are a fact of life in policy and no different in effect than market interactions. Our research shows that they can as easily reduce costs, by overcoming market barriers, as they can increase costs, by constraining cheaper options.
  • The most sustained recession since the 1930s has been the single largest contributor to reducing the levels of carbon emissions from what they were expected to be at this point in time, and this has in turn lowered the cost of meeting the European Emissions Trading Scheme (EU ETS) cap. However, our research, like that of others, shows that the ETS has reduced European carbon emissions even farther, perhaps by as much as 15% below what they would otherwise have been in the absence of this mechanism.
  • Innovation is the key to long-term cost reductions and our research shows that existing climate regulation, of all kinds, has stimulated innovation in emission-reducing technology. There is, however, no evidence from the research that economy-wide productivity has been either increased or decreased by this regulation and the associated innovation that it has triggered within the market.
  • Given the consensus in the literature that the EU ETS has had little to no effect on competitiveness, the ENTRACTE research focused in on issues involved in implementing border carbon (or tax) adjustments should they become necessary as EU ambition increases and should major trading partners not take commensurate measures. The research shows that the design requirements for effective border carbon (or tax) adjustments are extremely challenging, and identifies an immediate need to develop the means to track embedded emissions and understand the complex domestic effects of such adjustments.

This policy brief was authored by Prof. Frank Convery, Prof. Denny Ellerman and Dr. Andrew Kelly of EnvEcon and launched in September 2015.