On 15 th of July 2015, the European Commission released its proposalforareformoftheEUEmissionsTradingSystem (EU ETS). The reasons fora rather thorough reform are obvious: First, the mechanism of supply and demand is not working properly as the market foremissions allowances currently exhibits a surplus of more than one year’s emissions, thus causing the price for carbon to be very low and as a consequence postponing investment decisions into carbon reducing tech- nologies. Second, theEU ETS needs major adjustments regarding the long-term perspective ofa possible carbon path that is relevant for low-carbon investment decisions under risk. Third, theEU ETS needs to be aligned with the 2030 frame- work for climate and energy policy, which in turn has to be updated in view ofthe Paris Climate Conference that took place in December 2015. Although the Commis- sion proposal addresses all these issues, there is emerging evidence that only addi- tional reform steps will bring theEU ETS back to its intended role of becoming the cornerstone ofEU climate policy.
national mitigation policies in order to achieve their more ambitious domestic mitigation goals. However, reliance on domestic policy instruments would create an inefficient pattern of regulation across theEU and would add to the factors working towards reducing the EUA price. TheEU ETS is embedded in a multi-level governance structure, with Member States having diverging preferences over their technology mix and level of climate policy ambition. TheEU ETS is not the only instrument for climate and energy policy, but based on the national sovereignty ofthe energy mix, Member States can implement additional measures, such as renewable support schemes, energy efficiency measures, or additional domestic carbon prices (UK) that interact with theEU ETS. This is likely to intensify asymmetries in marginal abatement costs across Member States and thus increase overall policy cost. In addition, these policies also do only reallocate but not on net reduce emissions and can add to an even stronger reduction ofthe EUA price by exogenously reducing the allowance demand through channels identified in section 2.2, thus intensifying the problems oftheEU ETS. At the same time, given the differences in envisaged levels and timing of climate policy targets across Member States, the question arises as to whether theEU ETS can be adjusted to help guide these divergent national preferences towards mutually beneficial outcomes. These points are revisited in the discussion ofreform options in the next sections.
Source: EEX (2015).
However, because this measure only temporarily limits the amount of emission permits without solving the structural problem of certificate surpluses and their low prices, the European Commission (EC 2014b) is currently preparing the introduction ofa Market Sta- bility Reserve. According to the European Commission’s proposal, this was planned to commence with the start ofthe 4th trading period in 2021. After negotiations with theEu- ropean Parliament, thereform is planned to come into effect in 2019 (EP 2015). The idea is to regularly take allowances off the market and hold them in reserve when the number of surplus emission allowances goes above a certain maximum limit. Conversely, allowan- ces will be taken out ofthe reserve and put on the market when the number of surplus emission allowance goes below a certain minimum limit. The goal of this intervention is to stabilize the certificate prices on a higher level than the current one.
When it was launched in 2005, the European Union emissionstradingsystem (EU ETS) was projected to have prices of around €30/ton CO2 and to be a cornerstone ofthe EU’s climate policy. The reality was a cascade of falling prices, a ballooning privately held emissions bank, and a decade of low prices providing inadequate incentive to drive investment in the technologies and innovation necessary to achieve long-term climate goals. The European Commission responded with administrative measures, including postponing the introduction of allowances (backloading) and using a quantity-based criterion for regulating future allowance sales (the market stability reserve); although prices are beginning to recover, it is far from clear whether these measures will adequately support the price into the future. In the meantime, governments have been turning away from carbon pricing and adopting overlapping regulatory measures that reinforce low prices and further undermine the confidence in market-based approaches to addressing climate change. The solution in other carbon markets has been the introduction ofa reserve price that would set a minimum price in allowance auctions. Opponents of an auction reserve price in theEU ETS have expressed concern that a minimum auction price would interfere with economic operations in the market or would be tantamount to a tax, which would trigger a decision rule requiring unanimity among EU Member States. This Article reviews the economic and legal arguments for and against an auction reserve price. Our economic analysis concludes that an auction reserve price is necessary to accommodate overlapping policies and forthe allowance market to operate efficiently. Our legal analysis concludes that an auction reserve price is not a “provision primarily ofa fiscal nature,” nor would it “significantly affect a Member State’s choice between different energy sources.” We describe pathways through which a reserve price could be introduced.
pany operating in the chemical industry. We further explore this issue in section 5.3 by
enforcing exact matching on NACE Rev. 2 three-digit level for diﬀerent sub-samples. Next, we trim the sample by restricting it to those EU ETS ﬁrms with common support, i.e. to those EU ETS ﬁrms for which we do have at least one nearest neighbor from the reservoir of possible control ﬁrms that exhibits a suﬃciently similar propensity score. Trimming the sample to those companies on support comes at a certain price, i.e. we lose some degree of external validity. Hence, extending our ﬁndings to the whole population of regulated EU ETS ﬁrms will be somewhat less attainable. The clear beneﬁt ofa more consistent subsample is that this loss in sample size and external validity is more than compensated for by the resulting gain in internal validity. This means that our estimates, albeit reﬂecting the average treatment eﬀect on the treated (ATET) only fora certain subpopulation oftheEU ETS, will be more accurate and less prone to potential bias ( Dehejia and Wahba 1999 , 2002 ).
As Skjærseth et al. (2016, p.103-111) argue, the change of direction reflected in the 2002 proposal is best explained by the discussion process ensuing the publication ofthe Green Paper in 2000. In fact, this period was marked by strong dissent among the EU’s member states concerning several key areas ofthe proposed ETS. Whereas there was widespread support forthe general concept of implementing a harmonized system relying on a common allocation method as well as on community-wide monitor- ing, reporting and verification standards, there was no consensus on both the mandatory nature ofthesystem and on the allocation strategy. For instance, Germany and the UK as the two most influential member states, whereas for diferent reasons, favored a voluntary ETS for at least the initial trading phase. In Germany, the discussion process was influenced by industrial organizations such as the BDI (Bundesverband Deutscher Industrie) or the VCI (Verband der Chemischen Industrie), which vehemently opposed the country’s participation in a centralized European ETS. Accordingly, Germany’s negotiating position, which can be interpreted as a compromise between the BMU (Bundesministerium für Umwelt, Naturschutz und nukleare Sicherheit) arguing in favor ofthe proposed ETS Directive and the BMWA (Bundesministerium für Wirtschaft und Arbeit) taking the opposite stance, was aimed at promoting a voluntary structure including opt-out options on a national, sectoral or installation level. However, after extended negotiations lasting until December 2002, Germany was ready to accept the European Union’s terms and give in to a mandatory ETS. Among the concessions made by theEU in the process, the most notable is certainly the pooling provision which entered the ETS Directive as Article 28 and enabled "member states" to "allow operators of installations...to form a pool of installations from the same activ- ity for...the first five-year period" (European Commission, 2003). The UK, in turn, originally opposed a centralized European ETS in favor of their own, domestic system, which was initiated as planned in 2002, comprising 34 industrial companies on a voluntary basis. Intended to run for five years until 2007, the UK ETS also differed from its European counterpart in the inclusion of six GHGs instead of one as well as in the sectors covered. Eventually, the UK, which had aimed at modelling theEU ETS to its own approach during the negotiations, had to give in and reconsider their position – however, not without theEU conceding an opt-out clause for installations on a national level (Skjærseth & Wettestad, 2016, p.111).
instead purchase allowances. In the past years, the allow- ance price ranged between €6 and €9. This relatively low price is mainly attributed to a huge surplus of allowances in the market. A surplus emerges if the cumulated number of allowances exceeds the (veriﬁ ed) actual emissions. There are manifold reasons forthe huge surplus of excess allowances. One reason is the unexpected low emission levels as a consequence ofthe longstanding and se- vere economic crisis that erupted in 2008. Most notably, Southern European countries have been strongly afﬂ icted by the crisis and have not yet recovered economically. Another reason is the generation of green electricity in Europe. Both theCommission and individual member states deﬁ ned targets forthe shares of green electricity in consumption and established promotion schemes that overlap with the ETS. In Germany, for instance, the gen- eration of CO 2 -free electricity, which is promoted by ﬁ xed feed-in-tariffs for renewable energy sources (RES), leads to a decreased demand for emission allowances in the German power sector. This is illustrated in Figure 2 by a shift ofthe demand curve from D 0 to D 1 .
Considerable uncertainty surrounded the future of both the Kyoto protocol and the right to use offsets within theEU ETS beyond the end of phase II in 2012. Forthe supply side, it was clear that no more ERUs could be created from 2013 onwards, whereas the future of CER creation was unclear.
In April 2009, aEU directive called fora harmonization ofthe heterogeneous offset quantity limits across member states, claiming that generous limits gave some countries’ firms unfair advantages. The directive also extended the validity of offset entitlements into phase III (“bankability”), without determining details of this extension. It also raised the minimum allowed offset amount to 11% of entitlements between 2008 and 2012 or to 4.5% ofemissionsfor new entrants. However, formulation was cautious and details not fixed yet. In 2011, theCommission decided that CERs from industrial gas projects should not be valid within theEU ETS in phase III. The legislation making offset entitlements definitely bankable into phase III (2013-2020) was finally passed only in November 2013. Given that the previous regulation on offset entitlements had ended in April 2013, this leaves a considerable lapse of time in which the continuation ofthesystem was granted but legally binding details were not known. The new legislation states that firms can use in total over 2008-2020 the highest ofthe following:
Yet, thesystem produces large inefficiencies since only about half ofEU GHG emis- sions are covered by theEU ETS. Forthe remaining emissions in non-ETS sectors such as housing, agriculture and transport, EU countries agreed to undertake national measures to reach national binding annual targets until 2020 under the so-called “Effort Sharing Decision” (European Commission, 2009). Therefore, the current EU carbon market al- ready represents a second-best solution (B¨ ohringer et al., 2006; B¨ ohringer et al., 2016). B¨ ohringer et al. (2009) analyze the inefficiencies of such second-best EU climate poli- cies in the year 2020 with three computable general equilibrium (CGE) models. They show that the inefficiencies of separated EU carbon markets, with one ETS price and 28 implicit non-ETS prices in each member state, can be significant and leading to 25% - 50% higher abatement costs compared to the efficient solution. 2 One reformproposalfortheEU ETS is thus to extend its scope to more sectors and regions (Edenhofer et al., 2014; B¨ ohringer et al., 2014). It would be beneficial if there was only one carbon price in theEU in the long-run and an overall coherent European climate policy. Also, the current EU ETS targets are not very ambitious and the low carbon price of only around 5 e/tCO 2 gives little incentive for technological development and structural change re-
In December 2007, the UN climate conference took place in Bali, where the participating states discussed about further actions after the expiration ofthe Kyoto Protocol in 2012. They agreed upon the Bali Action Plan, which included that the successor agreement forthe Kyoto Protocol would be adopted at the UN climate conference in Copenhagen in 2009 (Skjærseth and Wettestad 2010a: 117). Against this background theCommission‟sproposalfora revision oftheEU ETS for its third phase was influenced by the forthcoming conference in three ways (Skjærseth and Wettestad 2010a: 118). First, theEU aimed to use its leadership position to push an ambitious agreement forward (Oberthür and Pallemaerts 2010: 45). To show the world its seriousness, theEU had set the target of reducing greenhouse gas emissions by 20 % until 2020 compared to 1990 levels with the option to increase this to 30 % if other countries would join in (Skjærseth and Wettestad 2010a: 117). Secondly, theCommission aimed to motivate other countries to cooperate by announcing to reduce external credits if an ambitious global deal could not be reached. However, if a global deal could be reached theEU would increase its target to 30 % and would allow half ofthe additional reduction efforts to be financed by external credits (Skjærseth and Wettestad 2010a: 118). Thirdly, regarding the potential risk of carbon leakage, theCommission postponed the decision about the threatened sectors to the time after the conference in Copenhagen (Skjærseth and Wettestad 2010a: 118). In January 2009, theEU issued its position paper forthe climate conference in Copenhagen, which contained the main aim to restrict global warming “to less than 2°C above the pre- industrial level” (European Commission 2009). An important item was the effort to establish an OECD-wide carbon market by 2015 and to reformthe CDM market (European Commission 2009).
tax shows. After one decade of ad hoc policies and reliance on the historical accidents of German reunification and the British “dash for gas”, it dawned on theCommission that current national policies would not reach the EU’s Kyoto commitment. In a courageous U-turn theCommission decided that an internal emissionstradingsystemfor large emitters provided the only powerful and effective alternative to an emissions tax.
The policy-event dummies give us some evidence, although limited, that regulatory uncertainty might play a role in price forma- tion. This ﬁnding, if conﬁrmed, would imply different reform options than the ones merely aimed at adjusting to short-term shocks (e.g. due to economic downturn or large renewable deployment). Such reform options should seek to stabilize the expectations of market partici- pants. From this perspective, two types of approaches are discussed in the literature: (i) reducing policy uncertainty and (ii) decreasing the long-term commitment problem ( Brunner et al., 2012 ). The former induces for instance the establishment of mid- to long-term legally binding CO 2 emissions reduction targets. The current debate is focusing on the 2030 targets but to ensure long-term cost effective- ness, it might be necessary to provide to market participants a long- term decarbonization pathway. Nonetheless, as discussed in Grosjean et al. (2014) such a strategy might not be suf ﬁcient to bring the necessary level of stability to the expectations of market participants. Tackling the long-term commitment problem in order to stabilize expectations is a delicate task. In monetary policy, the experience has favored delegation in setting the money supply as a tool to overcome the problem ( Barro and Gordon, 1983; Kydland and Prescott, 1977; Rogoff, 1985 ). In the context ofthereformoftheEU ETS, one could foresee the delegation ofthe governance ofthe carbon market to an independent authority whose goal would be to ensure that the short-term EUA price is in line with long-term target (e.g. Clò et al., 2013; de Perthuis and Trotignon, 2013 ). However, this will not be without dif ﬁculties. The exact mandate of this institution as well as the instrument used to achieve its goal will not be easily de ﬁned ( Grosjean et al., 2014 ). Nonetheless, what an independent authority may achieve is a smoother decision-process for making reforms as well as locating the decision outside ofthe political sphere ( Newell et al., 2012 ). This might create more stable expectations on the way decisions are taken over time, even if the goals are modi ﬁed to adapt to new information and circumstances.
A second development was the determination ofthe European Commission and the United States to introduce proposals that would further expand the binding rules ofthe multilateral tradingsystem, in par- ticular as they relate to domestic regulatory policies. Both sought in the mid-to-late 1980s the inclusion of labour and environmental provisions in WTO agree- ments. The European Commission also sought to ne- gotiate multilateral disciplines on investment policy, competition law, transparency in government procure- ment, and trade facilitation (the so-called Singapore Issues). Many developing countries saw potential la- bour and environmental provisions as both directly undermining the cost competitiveness of their exports and providing a pretext for protectionist measures by industrialised countries and consequently vigorously opposed these provisions. One casualty of this op- position was the WTO Ministerial Meeting in Seattle, held in 1999, where the American chair got a taste of more of what was to come: robust opponents willing to block progress in asystem based on the consensus principle. European objectives were to fare little better. At the Cancun Ministerial Conference in 2001 repre- sentatives ofthe African Group of developing coun- tries vetoed the formal launch of negotiations ofthe four Singapore Issues and the meeting collapsed soon thereafter. Also, a joint US-EUproposal on the modali- ties forthe agricultural trade negotiations was rejected as inadequate by a group of 20 or so developing coun- tries led by Brazil and including China and India. TheEU-US cartel over agenda setting and compromise brokering was over.
In a case of surprisingly low fuel consumption one could suspect fraud, or an unusually successful operation strategy, perhaps involving slow-steaming. It should not be too difficult fora licensed controller or port state authority to distinguish between them. However, it may be hard to explain small deviations from the expected pattern, as a large number of parameters such as routing, weather conditions and ballast-trimming influence real consumption. Therefore operators might get away with not registering a small part of their consumption provided that they were able to buy the fuel from a provider they could bribe. However, anyone doing so would run the risk of being caught. To discourage fraud, thesystem should enforce a high penalty on cheating. The best deterrence might be to rule that a ship (identified by its IMO number), whose owner, operator or charterer was proven guilty of fraud, would not be accepted in any participating port during the subsequent five or ten years.
Second, the European Pollution Release and Transfer Register (E-PRTR) provides data on emissionsof up to 91 different pollutants for approximately 28,000 industrial installations in Europe. 3 Pollution discharges into different environmental media are reported separately for air, water and soil. The broad groups of pollutants covered are: greenhouse gases, other gases, heavy metals, pesticides, chlorinated organic substances, other organic substances and inorganic substances. Data for two pre-treatment years, 2001 and 2004, are available from the European Pollution Emissions Register (EPER), the pre-decessor ofthe E-PRTR. 4 The E-PRTR Regula- tion was passed in 2006. 5 Among other improvements, the E-PRTR database provides annual coverage starting in year 2007. In most countries, the same installation identifiers are used in both data sets, so that linking pre- and post treatment observations for each plant is straightfor- ward. In some countries the link is not perfect, however, and in the case of Germany, the link is broken. In these cases, we establish the match by hand using the installation name, postcode, and GPS coordinates.
An analysis ofthe effects ofthe allocation rules in the al- lowance trade suggests that theemissionsof European electricity producers are not significantly distorted over- all due to free allocation. Nevertheless, there are indica- tions that theemissionsof small power plants depend on the allocation rules to a certain extent. These distor- tions arising from different allocation rules in different EU member states would be removed if emissions allow- ances were auctioned fully in all member states. There are also differences between large and small com- panies in the uptake of potential savings from interna- tional offset credits. Overall, more than 99 percent of all savings possible through offsets in Trading Phase II were achieved. However, some small emitters did not take advantage of this option. As a result, 22 percent of all companies, predominantly small emitters, did not re- alize potential cost savings from the use of offset cred- its worth an average of 31,000 euros. Relevant obsta- cles, which can generally be interpreted as fixed transac- tion costs, prevented small enterprises from benefiting from these potential cost savings. While developing theEU ETS, the problem of transaction costs for small en- terprises has been addressed, for example by simplify- ing reporting requirements and other special rules. 16 Fu-
ing by outside ﬁ nancing through foreign credi tors:
interest on borrowing paid to creditors abroad or licence fees paid to licensors abroad are not taxed
in Germany even though the value is produced here; only a trade tax of around 5% is levied on such in- terest – one ofthe reasons why big business is so determined to get rid of trade tax as the last remnant of domestic tax sovereignty. This is where unfair tax competition within theEU also comes into the pic- ture: by granting preferential tax regimes to foreign holdings and credit insti tutes a growing number of member states induces them to set up tax residence outside the country in which the value production takes place. This leads to the “erosion ofthe base” which for some years now has been deplored by the European Commission: mutual impoverishment makes each state poorer in the end. Moreover, the transaction costs of such strategies make them inaccessible to small and most medium-sized busi- nesses, another form of unfair competition between regional enterprises and international trusts.
It should be emphasized that the suspension of 20 judges ofthe Extraordinary Control and Public Affairs Chamber is a very urgent issue, because otherwise, together with the other judges ofthe Supreme Court elected by the neo KRS (of which 10 sit in the Disciplinary Chamber, and 7 in the Civil Chamber) they will be able to appoint one of 5 candidates forthe position of First President ofthe Supreme Court, as the successor of Professor Gersdorf. In this case, President Duda will certainly indicate the very candidate who will guarantee strict political subordination to the ruling camp. As the example ofthe Polish Constitutional Tribunal indicates, filling most judicial positions and the position of First President will be sufficient to subject the highest Polish judicial body to strict political control. This situation will be tantamount to the fall ofthe Supreme Court as the last symbol of judicial independence in Poland, and in addition, the bodies ofthe European Union will be deprived ofa partner who ensures proper and uniform interpretation of European Union law in Poland (the best example of which is the resolution ofthe combined chambers ofthe Supreme Court of 23 January 2020).
Since 1996, theEU has attempted to liberalize the European electricity market. However, Member States have been sluggish in implementing theEU Directive. Consequently, electricity markets are still dominated by few large electricity utilities (Joskow, 2008). The impact of market power on technological change has been strongly debated. On the one hand, it is argued that investment in R&D may be larger under market power than in the case ofa competitive market, e.g. because firms can realize economies of scale and have more financial resources available (Aghion and Howitt, 1992; Grossman and Helpman, 1991; Schumpeter, 1942). On the other hand, it has been pointed out that firms which do not face competition may not be forced to be efficient and to innovate (Arrow, 1962b; Nickell, 1996; Porter, 1990). Moreover, there are some fundamental problems of markets with limited competition. Firstly, dominant firms tend to invest mainly in incremental improvements of technologies that are currently in use rather than in fundamental technological change (Grubb, 1997, p. 162). This often results in process rather than product innovation (Unruh, 2000, p. 821). Secondly, firms having market power may impede the entry of new competitors, e.g. by price manipulations or – in a vertically integrated industry – by denying grid access (Neuhoff, 2005, p. 95). This may impair the installation of renewable energy plants as they are often operated by market entrants. Thirdly, market entry barriers imply that there are fewer operating firms investing in innovation, i.e. a reduced probability ofa technological break-through (Geroski, 1990). Finally, a dominant market position may change the behaviour of firm managers providing for some “managerial slack” (Aghion et al., 1999; Geroski, 1990). Instead, firms may invest significant resources in rent-seeking to protect its existing market position and generation structure. So overall, there are arguments why an insufficient liberalization oftheEU electricity market, which impedes ample competition, may also compromise efficient technology choice.
Looking at the nationality of CSOs participating in DG Employment and Social Affairs consultations, three main findings can be reported. Firstly, CSOs from the old and large EU member countries (France, Germany, Italy, UK) are the most present; this holds true for market-actors associations as well as non-market actors associations. Secondly, the national origin of non- market actors associations is much wider than the geographical distribution of market-actors associations; especially business associations from small and/or new EU member countries participate rarely in DG Employment consultations, probably entrusting Eurogroups with the representation of their interests (none or one business associations: Netherlands, Luxembourg, Portugal, Cyprus, Czech Republic, Estonia, Finland, Latvia, Malta, Romania, Slovakia, and Slovenia; yet all these countries are presented in DG Employment consultations by more than one CSO ofthe non-market sector). Thirdly, we find the following rule: The longer a country is an EU member, the higher its number of non-market actors associations participating in DG Employment consultations. Obviously, not only (financial) resources are crucial forEU level activities of NGOs; familiarity with theEU itself seems to be another decisive factor for participation in EU policy making. Thus, more efforts to break down the barriers between theCommission (especially its complex institutional setting) and CSOs from new(er) member states are needed.