Companies and regulators in emissions trading programs

Abstract

Much has been written about the economic and environmental performance of U.S. emissions trading programs for "acid rain" (sulfur dioxide) and nitrogen oxides. Less explored have been the unique roles and interactions of environmental regulators and the companies they regulate. I first examine how these roles change the way that regulators and companies operate within their own organizations and with each other. Next, I use examples from U.S. trading programs to illustrate the design and administrative features that allow program administrators and industry to best fulfill their respective roles. Finally, I examine briefly whether these features are present in the EU Emissions Trading System and determine the implications for its effectiveness.

Making Cap-and-Trade Work:Lessons from the European Union Experience

“…The ETS in particular is plagued by this type of uncertainty due to its international character, which has always involved political negotiation. 13 Uncertainty regarding medium-or long-term aggregate abatement targets prevents businesses from anticipating the long-term price of carbon, which makes it difficult for them to decide which technologies to pursue or to formulate a long-term carbon strategy. 14 Uncertainty regarding future price trends is inherent to any kind of market system.…”

Eco‐efficiency: GHG reduction related environmental and economic performance. The case of the companies participating in the EU Emissions Trading Scheme

“…Our empirical study focuses on the companies that participated in the EU ETS in the period from 2005 to 2012. With the implementation of the scheme, companies received a significant incentive to tailor their environmental strategies to comply with the new legislation, as well as to maximize cost effectiveness (Kruger, ) and thus sustain their competitiveness (Sandoff and Schaad, ). However, organizations had different starting points at the introduction of the scheme depending on several predetermined factors, such as their environmental performance outlook and the state of their technologies.…”

“…One of the key benefits of the EU ETS over other potential policy instruments is that it allows participating organizations to tailor their compliancy strategies in a way that maximizes cost effectiveness (Kruger, ). Companies are essentially left with three alternative strategies to comply with the scheme: reducing GHG emissions just enough to meet the legal requirements, buying emission allowances in the carbon market in order to compensate for excess pollution, or reducing GHG emissions below the legal requirements and benefiting from the sale of excess emission allowances on the market (Sandoff and Schaad, ).…”

Environmentally Responsible Supply Chains

“…In order to reduce their SO 2 emissions, coal-fired power generators learned how to mix various kinds of coal to create lower sulfur blends and how to develop financially feasible "scrubber" systems (Stavins andSchmalensee 2012, citing Bellas andLange 2011;Ellerman et al 2000;Frey 2008;Popp 2003). The ARP also led many companies to adopt new internal processes to account for allowance price uncertainty and risk when making operational decisions (Kruger 2005).…”