Carbon mitigation strategies in the heat and power sector and the efficiency of the European Union emission trading scheme (EU ETS)

• The European Union committed itself to reduce greenhouse gas emissions with 20% below 1990-levels by 2020, and the EU ETS is the main instrument to reach this goal. Emission trading reallocates emission reductions among installations in a long-run cost-minimizing manner, while offering flexibility to companies to develop a carbon mitigation strategy that suits their individual needs. The power sector is a key industry for carbon mitigation, generating roughly 70% of CO2 emissions regulated under the scheme. In the third trading period, power companies face a stiffened allowance regime and will no longer receive any free allocation. This paper examines the carbon mitigation strategies of Swedish heat and power companies, facing zero allocation already in the second trading period. Data from these companies have been singled out from two surveys conducted in 2006 and 2009 investigating the Swedish Trading Sectors participants‘ climate strategies under the EU ETS. Three areas are of interest to draw conclusions on the efficiency of the scheme: the organization of allowance management, the use of compensatory measures and corporate carbon mitigation strategies. It is concluded that although there are developments to be seen in both emission reductions and allowance management, there are few indications that this is a result of a stiffer allocation regime. Surprisingly, the biggest change observed lays in the increased efficiency handling the system. It can be concluded that the EU ETS has a number of unintended effects, mostly due to the fact that the theoretical assumptions of the model do not stand up to the conditions of management. Companies take advantage of the operating flexibility provided by the scheme rather than of its potential for long-run cost reallocation. Based on the results from the Swedish sample, it can be questioned whether the stiffened allowance regime will have any significant effect on carbon mitigation strategies of energy companies in the rest of Europe.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Företagsekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Business Administration (hsv//eng)

Keyword

EU ETS

carbon mitigation strategies

emission trading

Publication and Content Type

vet (subject category)

kon (subject category)