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Extended ETS outperforms carbon border adjustment in the power sector

(EurActiv, 19 Aug 2020) Creating a carbon border adjustment mechanism would not work as well as extending the EU Emissions Trading Scheme to reduce global emissions and further integrate energy exporting countries into the European power market, argue András Mezősi, Zsuzsanna Pató and László Szabó.

Zsuzsanna Pató is a senior advisor at the Regulatory Assistance Project (RAP), an independent NGO dedicated to accelerating the transition to a clean, reliable, and efficient energy future. András Mezősi is a senior associate and László Szabó the director at the Regional Center for Energy Policy Analysis.

Carbon leakage occurs in any carbon pricing regime that is not global, which means all of them so far. That is inherently unfair to sectors that are subject to a carbon price but compete with those that are not. The European Green Deal aims to rectify the problem in the EU Emissions Trading Scheme (ETS) by moving beyond the current second (or third) best option, which allocates emissions quotas for free for industrial sectors, and putting a price on carbon at the EU border for selected but not yet named sectors.

The merits with respect to energy-intensive industries have already been questioned. What would a border carbon adjustment mean for the European power sector?

Our recent model-based analysis concludes that expanding the EU ETS is a more effective policy option because it would reduce emissions, while a carbon border adjustment would not. We compared these two options for the power sectors in the West Balkan countries as well as Ukraine, Belarus, Moldova and Turkey, and assessed the emissions, cost and policy implications.

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EurActiv, 19 Aug 2020: Extended ETS outperforms carbon border adjustment in the power sector