Second Euro-CO2 trading experiment "a success"

Eurelectric reports results of simulated trading between companies in six sectors

Trading of carbon dioxide (CO2) between companies in different industrial sectors works and can help to reduce emissions, European electricity industry association Eurelectric has claimed. The body was reporting the results of simulated trading involving 40 companies in six industrial sectors operating in 16 countries. The exercise followed an earlier one involving just electricity firms, which Eurelectric said was also a success (ENDS Daily 21 October 1999).

According to Eurelectric "Gets 2" has shown that different ways of allocating emission quotas to participating companies did not affect the environmental outcome, but did change the financial implications for firms. It said that the exercise demonstrated that a primary benefit of emissions trading was to assist companies in deciding when they should invest in emission reductions for their own installations.

Three simulated 15-year trading periods were run during Gets 2, using different rules in each. Companies were required to make absolute emissions cuts or to make cuts relative to output. Carbon credits were allocated either by grandfathering - based on firms' current emission levels - or by auctioning or benchmarking. Allocation by benchmarking was achieved by calculating the average emission level for a specific sector and allocating fewer credits to companies with higher than average emissions and more credits to companies with lower than average emissions.

"Uneconomic behaviour and abnormal transactions" were recorded toward the end of each trading period, indicating that businesses need longer-term emission policies in order to ensure sound decision making, according to Eurelectric. The association also concluded that a carbon market alone would not provide sufficient incentive for significant development of renewable energy sources and suggested green certificates or other instruments would also be needed.

Follow Up:
Eurelectric, tel: +32 2 515 10 00; Gets 2 report.

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