Intra- and Extra-Union Flexibility in Meeting the European Union's Emission Reduction Targets

by Richard S J Tol

- The EU has proposed four flexibility mechanisms for the regulation of greenhouse gas emissions in the period 2013-2020: (1) the Emissions Trade Scheme (ETS); (2) trade in non-ETS allotments between Member States; (3) the Clean Development Mechanism (CDM); and (4) trade in CDM warrants between Member States. This paper shows that aggregate abatement costs fall as flexibility increases. However, limited flexibility creates rents so that increasing flexibility raises costs in some Member States.

Tol, R.S.J. (2009). "Intra- and Extra-Union Flexibility in Meeting the European Union's Emission Reduction Targets." ESRI Working Paper 290, April 2009.