Emission trading programmes could save Europe EUR80 billion

The design of the emissions trading programme would also have a substantial effect on the costs and benefits to participants, says UK-based eco-consultancy group Environmental Resources Management (ERM) who organised the Greenhouse and Energy Trading Simulation (GETS3) on behalf of the European Union of the Electricity Industry, Eurelectric.

This was the third of a series of trading simulations, and was designed to investigate the effect that emission trading has on the costs of complying with emission reductions and how the design of a trading scheme effects the level of costs and their distribution between countries and sectors.

The simulation covered 20 countries – 15 from within the European Union, and a further five potential trading partners, namely Norway, Switzerland, Czech Republic, Hungary and Poland. It covers the abatement demands of each sector in each country – as outlined in the EU’s climate change programme analysis – for all six Kyoto Protocol greenhouse gases.

Costs of compliance could be kept low if there was no limit on the amount of emission reductions that a company could purchase – rather than obliging each trading group to meet a certain percentage of their requirements through their own abatement measures. Other constraints on trading would also increase costs.

Another significant finding of GETS3 was that Kyoto targets could not be met if there was no emission trading market – which would also result in the highest compliance costs. High levels of participation in trading, however, would guarantee that goals would be met, and that costs are much lower.

However, a market with only the four biggest countries participating would result in compliance costs six to eight times higher than if all European Community countries were involved, says the report.