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Euro-Mediterranean partnership, Barcelona initiative, Syria, Non-Tariff-Barriers (NTBs), Dynamic CGE, E32, O11,

The EU Emissions Trading System (EU ETS) has provided neither credible incentives for long-term investments in low-carbon technologies nor strong near-term mitigation incentives. Low EU ETS allowance (EUA) prices and the heterogeneity of the EU Member States (MS) have led to a patchwork of national climate policy across MS, with variable and unequal policy stringency. Under the current EU ETS design these national policies do not achieve additional emission reductions within ETS sectors. Instead, they reduce the EU ETS carbon price and reallocate carbon emissions to MS with weaker national climate policies. A price floor for EUAs combined with appropriate transfers (the redistribution of EU ETS revenues) allows for the heterogeneity of MS within the multilevel policy structure of the EU to be addressed. While the economic literature suggests using optimal transfers across MS to achieve efficiency when a quantity (ETS) or price instrument is employed, the implementation of optimal transfers may not be feasible. Nevertheless, there are other transfer schemes that can improve upon the EU's solidarity and subsidiarity-two well-established EU normative design principles-and the EU ETS' economic efficiency. A numerical exercise is provided to quantify the cost effects of the EU ETS price floor proposal within the European power sector.