Results and outcome of ENTRACTE in research*eu magazine

April 08, 2016

An article featuring the results and outcome of the ENTRACTE project has been published in the March 2016 edition European Union’s Results Magazine research*eu. The article “EU Study Suggests A ‘Right Policy Mix’ for the Future ETS” highlights the major obstacles and inherent errors of the Emission Trading Scheme (ETS), but not without offering suggestions for improvement.

The article states the main flaw of the ETS: a persistently surplus of emission allowances remains. According to ENTRACTE coordinator Dr. Olivier Schenker, this is the main reason why the emission regulation tool could not realise its full potential yet. The cap set by the EU turned out “to be too lenient” and can only be revised if the EU overcomes its current “lack of political will”. Carbon taxing can only prove its effectiveness if emission allowances remain scarce on the economic market. The Market Stability Reserve (MSR) as an EU’s solution to the problem is still a too modest answer to the market.

One of the threats to the ETS is the compliance of different member states, as the overall integrity is a crucial factor to the success of the emission regulation tool. Within the ENTRACTE project no evidence was found that economic productivity got hampered or fostered by the ETS regulation and information on innovations it may have triggered was detected.

The ENTRACTE team found out that the ETS did not really lead to a change of emission behaviour or even innovation within SMEs, but rather to a compliant and passive attitude regarding carbon taxing. The project suggests letting smaller companies opt out of the system to reduce their transaction costs. Alternatively to the end-of-pipe emissions, the carbon content of fossil fuels could be measured. No links between different market failures considering energy-efficient technologies could be observed. Such failures have to be considered singularly, as they are quite specific.

The results and outcome of the ENTRACTE project show that policy making in the field of emission regulation is very complex and may have unintended side effects. The project makes an important contribution for a better understanding how the ETS has been working so far and how it can be used in the future.

Read the full article published by the research*eu (p. 25f.).