Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: Summary:

A new and remarkable Green Paper about how to trade Greenhouse gases (GHG) in the EU has recently been published by the Commission of the European Union. This to achieve the stated 8% reduction target level. The Green Paper raises ten questions about how greenhouse gas permit trading should be designed in the EU before year 2005. These ten questions can be compressed into four main issues, namely target group, allocation of emission allowances, how to mix emission trading with other instruments and fourth enforcement. In the literature, there is a strong need to guide decision-makers and stimulate academic debates concerning the actual design of a simple and workable GHG market model for the EU. This model must take both economic, administrative and political concerns into account so that it is feasible in practice. Based on our findings, we therefore develop a policy recommendation concerning the future design of GHG permit trading in the EU.

Keywords: European Union; Energy policy; Greenhouse gases; CO2 emission; Permit trading design; Kyoto protocol; Electricity sector

JEL-codes: Q28

15 pages, January 1, 2001

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