Climate Policy

Climate Policy 6 (2006) 395–410

Research Article

Emission projections 2008–2012 versus national allocation plans II

Karsten Neuhoff, Federico Ferrario, Michael Grubb, Etienne Gabel and Kim Keats

We compare the national allocation plans (NAPs), proposed and submitted by EU Member States as of October 2006, with our estimations for CO₂ emissions by the installations covered by these NAPs. The collective allocations proposed under phase II NAPs exceed the historic trend of emissions extrapolated forward. Using our projections we find, depending on uncertainty in fuel prices, economic growth rates, performance of the non-power sector and CDM/JI availability, a 15% chance of a ‘dead market’ with emissions below cap even at zero prices. With an expected inflow of committed CDM/JI credits of 100 MtCO₂/year, allowance supply will exceed demand in 50% of cases without any carbon price, and in 80% of our €20/tCO₂ scenarios. Banking of allowances towards post-2012 conditions could create additional demand, but this is difficult to anticipate and conditional on policy evolution. The proposed phase II NAPs would result in low prices and only small volumes of CDM/JI would enter the EU ETS. CDM/JI would almost exclusively be public-sector funded, placing the cost of Kyoto compliance entirely upon governments.

Keywords: Emissions trading; Allocation plan; Europe; Projections

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