Global Externalities, Local Policies, and Firm Selection

How to fight global problems with local tools? When only firms know what externality-producing activities can be relocated, policies shape the location distribution of firm types with different social values. We find that, because of this selection effect, the optimal local policies confront firms’ mobility with elevated corrective externality prices, in contrast with the common remedies for the relocation risk. Our mechanism incentivizes also moving firms to limit the externality, and it influences strategically the distribution of moving firms that comply with policies elsewhere. The magnitude of these effects is illustrated by a quantification for the key sectors in the EU emissions trading system.

Implementing the EU Climate Law via the ‘Fit for 55’ package

ABSTRACT To implement the European Union (EU) Climate Law’s newly established 55% greenhouse gas reduction objective for 2030, the EU Commission suggests a wave of reforms to the European energy and climate legislation. The contribution aims to describe the EU Commission’s 16 initial legislative and strategic proposals regarding the major pillars of the European energy and climate legislation and intends to give an overview on the suggested reforms. By comparing the legal status quo with the legal framework de lege ferenda as presented by the Commission’s proposals, the planned major changes to the legal structures are identified. To achieve the 55% greenhouse gas reduction objective for 2030, all existing legal climate and energy acts are planned to be tightened by amending their targets as well as scopes and revising their structures. The suggested reforms concern the existing EU emissions trading system, effort sharing system between the Member States, energy taxation, energy efficiency and renewable energies. Additionally, the implementation of new instruments, such as the second EU emissions trading system for the sectors buildings and transport, the Carbon Border Adjustment Mechanism and the Social Climate Fund, is proposed. The design of the package shows that the Commission still generally pursues a climate legislation characterized by a mix of instruments and policies being both price based and regulatory. So, even though the major proposed change—the introduction of a second separate emissions trading system—would strengthen the role of carbon pricing, the Commission still relies on a mix of instruments without defining a leading instrument.

Fit for 55 could weaken EU industrial competitiveness

Significance Further strengthening of the EU Emissions Trading System (ETS), combined with phasing out free allocations and introducing a Carbon Border Adjustment Mechanism (CBAM), looks likely to expose European industry to upward cost pressures at a time when they need capital to invest in emergent low-carbon industrial processes. Impacts 'Carbon leakage' remains a big concern: while relocation usually has multiple motivations, it may well increase as EU carbon costs rise. Supply chain pressures look likely to push costs up both for EU industry and the renewables sector. Major investment opportunities exist in the areas of renewable energy and alternative fuels infrastructure.

Legal Aspects of Adaptation Finance under the UNFCCC Regime with Special Reference to the Adaptation Fund

This article addresses the legal aspects of the financing of adaptation to climate change, with special consideration given to one of the climate funds – the Adaptation Fund (AF). In the complex structure of climate finance, the AF attracts attention as it differs from other funds in several aspects. As an exception from other United Nations (UNs) climate funds, AF has not been recognised as an operating entity of the Financial Mechanism of the Convention. AF is also an unprecedented example under the Convention of a fund serving in parallel two decision-making bodies (CMP and CMA) under two agreements (Kyoto Protocol and Paris Agreement) ratified by non-overlapping sets of parties; with a Fund Board elected by both bodies collectively. AFs funding source is specific, it was designed to be financed from shares of the proceeds of sales of certified emission reduction units (CERs) generated by Clean Development Mechanism (CDM) projects but since 2012 there is a limited possibility of offsetting the emissions with CERs under the EU emissions trading system (ETS). For several years Parties were unable to agree the operating principles and procedures of a new mechanism established in article 6(4) of the Paris Agreement, which will resemble CDM, and would constitute a source of funding for the AF. Once this source of funding is available, the AF would cease to serve the Kyoto Protocol. Despite the above problems, AF was seen as a good example of how future climate funding can be designed. We examine the evolution of the above legal problems, including the most recent decisions and conclusions adopted during Conference of Parties (COP)25 in Madrid.

Testing for the economic and environmental impacts of EU Emissions Trading System: A panel GMM approach

The COVID‑19 pandemic has had a great impact on the economies of the EU, also with regard to the future of EU climate policy. The plan to rebuild and support the EU economy seems to place less emphasis on environmental issues as the main focus has been shifted to a quick economic recovery. One of the issues discussed in this context is the continued operation of the EU ETS. From this perspective, empirical research devoted to a thorough analysis of the impact of the EU ETS is of particular importance. At the same time, the current economic literature lacks any econometric analyzes devoted to the issues in question that would use detailed and reliable databases on EU ETS like the one provided by the Wegener Center for Climate and Global Change. The aim of this paper is to make a preliminary assessment of the effectiveness of the EU ETS in terms of reducing the actual emissions while preserving the economic growth of EU member states. The extensive empirical analysis is focused on examining the issues in question for different phases of the EU ETS and various groups of EU economies that vary in terms of economic development and the overall air pollutant emission.