Interactions of the EU ETS with Green and White Certificate Schemes

The Situation

The European Union Emissions Trading Scheme (EU ETS) was launched on 1 January 2005. The cap-and-trade scheme limits total emissions of carbon dioxide from covered facilities and creates a market for emissions allowances in which participants can trade allowances. Two other policies -- green certificate and white certificate schemes -- also create tradable environmental commodities. Indeed, these other two policies have been developed to achieve climate policy objectives (among others).

All three types of market-based environmental instruments affect the electricity sector, which raises complex issues of policy interactions. The European Commission was concerned that the interactions of these various policies was not properly understood and, in particular, that it was important to determine how the goals of the various schemes would be affected by the presence of the other schemes. NERA was asked by the European Commission to analyze the interactions between the EU ETS and green and white certificate programs and to assess the implications of these interactions for the objectives of each policy.

NERA's Role

A NERA team led by Senior Vice President and Environment Group Head Dr. David Harrison and Associate Director Daniel Radov conducted a comprehensive review of these interactions to assist policy makers in the development and evaluation of these various policies.

The Result

NERA's study concludes that the two certificate programs generally do not affect the overall level of carbon dioxide emissions in the EU (although there are exceptions). It also concludes that the presence of these other certificate schemes does increase the cost of achieving the carbon dioxide cap set under the EU ETS, although it is important to take into account the additional objectives furthered by the two schemes as well. The combined effects of the various market-based approaches on electricity prices are complicated, as are the differential impacts on consumers and producers.