Here you'll find our research outputs in the form of Mistra Indigo Policy Papers. All our publications can be found in the Research Results Archive.
Climate Policy Options and Consequences in the International Spotlight
Dallas Burtraw, Carolyn Fischer, Peringe Grennfelt, Åsa Löfgren, Thomas Sterner, Markus Wråke and Lars Zetterberg
This report aims to help decision makers in industry and the electricity sector better understand the implications of current climate policies in the European Union, the United States, and around the world.Regardless of specific domestic approaches, or the outcomes of global negotiations, policies and actions to mitigate climate change will directly affect energy-intensive industries and the electricity sector around the world.With this in mind, researchers in the Mistra Indigo program have during the last years tackled important questions about the globalization of carbon markets, carbon pricing to encourage long-term investments in low-carbon technologies, the distributional effects of climate policies at various levels, and the interactions between climate regulations and markets.As the Mistra Indigo program is now moving towards the end, we have summed up some of our most important results regarding the subject in this report. Read the report (pdf, 3.1 MB)
Policy Paper 6: EU ETS reform – Assessing the Market Stability Reserve
Lars Zetterberg, Daniel Engström Stenson, Susanna Roth
In light of the current state of European emissions trading, with a surplus of more than 2 billion allowance and a low price (around €6) , the European Commission has proposed using a Market Stability Reserve (MSR) to restore the function of the European Emissions Trading Scheme (EU ETS). The objective of the MSR is to regulate the surplus of allowances so that it falls within an ‘optimal’ band. This is achieved by adjusting annual auction volumes in a rule-based manner. The European Commission’s proposal builds on two triggering thresholds, which are based on the quantity of allowances in circulation. The first threshold is triggered when the quantity of allowances is higher than 833 million tons, then 12% of the allowances are removed from auctions and placed in the MSR. If the quantity of allowances is less than 400 million tons, 100 million tons are taken from the MSR and added to the auction of that current year.The objective of this policy paper is to analyze how the MSR affects the function and efficiency of the EU ETS. The paper builds on previous analyses from other observers, as well as additional analysis made by our team.We conclude that making a significant volume of planned allowance allocations unavailable for buyers is generally positive. Yet our preferred choice, and in our view the most effective way to reset the market, would be to permanently remove a number of allowances from the market.If a temporary removal of allowances is preferred, the proposed MSR has some merits. It is likely to reduce the rapidly growing surplus, and it is designed in a way that keeps the removed allowances out of the market for enough time to have a real impact on price. Yet for a number of reasons, we are less certain that the MSR as proposed by the Commission constitute the best option for strengthening the functioning of the EU ETS because:
The MSR does not come into effect until 2021 and hence does little to improve the current oversupply of allowances. Therefore we suggest that the MSR enter into force in 2017 or 2018. In addition, it is crucial that the 900 million backloaded allowances are not injected into the market in 2019, but rather moved to the MSR.
There are legitimate concerns regarding the impacts on price volatility, where some analyses show a risk of higher volatility.
The discussion on the exact number of allowances needed for hedging obscures the fact that the overarching aim of the EU ETS is to reduce emissions in a cost efficient manner.
The MSR is also adding yet another layer of complexity to an already complex system. This raises questions pertaining to the transparency and predictability of the system.
Discussions about the surplus and the MSR often focus on impacts on price. If the ambition is to secure a certain price level, we note that the MSR is indirect, blunt, and uncertain. In this respect, the idea of a price collar would be a relevant alternative to investigate further.
There is little insight into how the MSR might affect possible future linkages between the EU ETS and other markets and should therefore be evaluated further.
Policy Paper 4: A Price Floor Solution to the Allowance Surplus in the EU ETS
Dallas Burtraw, Åsa Löfgren and Lars Zetterberg
Since 2008 there has been a rapid buildup of surplus emissions allowances in the EU ETS. The European Commission has presented six structural options to addressthe oversupply of allowances on a long-term basis.
One option would introduce price management mechanisms, which could allow for the use of a price floor. A price floor has been mischaracterized as a tax, an instrument that has historically faced political opposition, and the commission states that an explicit carbon price objective would alter the nature of the EU ETS being a quantity-based market instrument.However, a price floor is structurally different from a tax in multiple ways, and its merits are well documented in the academic literature. This rule-based approach could reinforce the market-based philosophy and investment climate of the ETS.
Policy Paper 2: The Value of Being First -San Francisco Workshop summed up in Proceedings Paper
Dallas Burtraw, Daniel F. Morris, Lars Zetterberg
California and Sweden are in a small group of front runner countries and states on issues of climate policy. In May 2013, Resources for the Future, the Mistra Indigo program, and the ClimateWorks Foundation held a special conference to deconstruct the experiences of California and Sweden in forging new ground toward climate change mitigation and climate policy decisions. At the workshop, leaders from the public, private, and research communities as well as from nongovernmental organizations addressed pathways for climate progress in the current political landscape, issues of industry and state competitiveness, and opportunities for climate gains through action in the transportation arena.Read the full summary of workshop proceedings here and complete speaker bios here.
Policy Paper 3: Defying Conventional Wisdom - Distributional Impacts of Fuel Taxes
Daniel F. Morris and Thomas Sterner
Fuel taxes for transportation represent one of the most potent and readily available policies to address increasing global greenhouse gas emissions. Yet, they are pilloried by politicians because of their supposedly regressive impacts to the poorest populations.Research from both OECD and non-OECD countries, however, suggests such arguments are disingenuous and that fuel taxes are often neutral or even progressive in their impacts. Transport fuel taxes function like luxury goods in many countries, particularly low income countries, so tax burdens fall on wealthier individuals rather than poorer ones.This paper summarizes the findings of a recent book with more than twenty empirical case studies of the effects of fuel taxes for different nations. According to the studies, fuel taxes are strongly progressive throughout Africa and the big Asian countries. In middle income countries in Latin America and in Europe they are often neutral. Tax regressivity in the United States can be corrected with effective revenue use.
Policy Paper 1: U.S. Status on Climate Change Mitigation
Dallas Burtraw and Matt Woerman
In 2009, President Obama pledged that, by 2020, the United States would achieve reductions in greenhouse gas emissions of 17 percent from 2005 levels. With the failure of Congress to adopt comprehensive climate legislation in 2010, the feasibility of the pledge was put in doubt. However, we find that the United States is near to reaching this goal; currently the country is on course to achieve reductions of 16.3 percent from 2005 levels in 2020. Three factors contribute to this outcome: greenhouse gas regulations under the Clean Air Act, secular trends including changes in relative fuel prices and energy efficiency, and subnational efforts. Perhaps even more surprising, domestic emissions are probably less than would have occurred if the Waxman—Markey cap-and-trade proposal had become law in 2010. However, at this point the United States is expected to fail to meet its financing commitments under the Copenhagen Accord for 2020.