EMISSIONS TRADING IN PRACTICE A EMISSIONS TRADING IN PRACTICE: A HANDBOOK ON DESIGN AND IMPLEMENTATION © 2016 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 19 18 17 16 This work is a joint product of the staff of The World Bank and adelphi, representing the International Carbon Action Partnership (ICAP), with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent, nor of ICAP and its members. The World Bank and adelphi do not guarantee the accuracy of the data included in this work. 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EMISSIONS TRADING IN PRACTICE: A HANDBOOK ON DESIGN AND IMPLEMENTATION In collaboration with: Motu II EMISSIONS TRADING IN PRACTICE ACKNOWLEDGMENTS This Handbook was prepared jointly by a team of experts from Motu Climate Economics – I4CE), Danira Baigunakova (Alexander von Economic and Public Policy Research and Environmental Defense Humboldt Foundation), Juan Carlos Belausteguigoitia (Centro Mario Fund, with significant contribution from Vivid Economics. Molina), Nicolas Bianco (EDF), Hendrik (Derik) Broekhoff (Stockholm Environment Institute), Chris Bush (Energy Innovation), Yong-Sung Suzi Kerr and Ruben Lubowski led the teams from Motu Economic Cho (Korea University), Suh-Yong Chung (Korea University), Brent and Public Policy Research and Environmental Defense Fund, respec- Cloete (DNA Economics), Brett Cohen (The Green House), Frank tively, which also consisted of Catherine Leining and Leah Murphy Convery (EDF), Margaret Cress (EDF), Antoine Dechezleprêtre (Motu) and Gernot Wagner and Katherine Rittenhouse (EDF). The (London School of Economics), Kristin Eberhard (Sightline Institute), Vivid Economics team was led by John Ward, and also included Cor Zeren Erik Yasar (Turkey), Carolyn Fischer (Resources for the Future), Marijs and Paul Sammon. Hubert Fallmann (Umweltbundesamt), Dirk Forrister (IETA), Meredith Michael Mehling (Massachusetts Institute of Technology), Felix Fowlie (University of California, Berkeley), Alexander Golub (EDF Matthes (Öko-Institut), and Duan Maosheng (Tsinghua University) and American University), Quentin Grafton (Australian National edited the Handbook, and also devoted their time and expertise to University), Sonia Hamel (Hamel Environmental Consulting), Anthea provide project guidance. Harris (Victorian Government, Australia), Takashi Hongo (Mitsui Global Strategic Studies), Max Horstink (SouthSouthNorth), Yu-Shim Pierre Guigon (World Bank), Constanze Haug and William Acworth Jeong (Korean Foundation for Quality, Republic of Korea), Cui Jing (ICAP Secretariat) provided substantive inputs and managed the (Baosteel), Nathaniel Keohane (EDF), Seong-il Kim (Seoul National project. University), Yong-Gun Kim (Korea Environment Institute), Xavier Labandeira (University of Vigo), Sang Youp Lee (Korea Environment We also wish to acknowledge the following contributing authors: Rob Institute), Franz Litz (Great Plains Institute), Andreas Löschel Fowler (Essential Change Advisory Services), Jürg Füssler (INFRAS), (University of Muenster), Diptiranjan Mahapatra (Adani Institute Alex Hanafi (EDF), Tang Jin (SinoCarbon), Joojin Kim (EDF), Joshua of Infrastructure Management), Claudio Marcantonini (European Margolis (EDF), Clayton Munnings (Resources for the Future), University Institute), Andrei Marcu (Centre for European Policy Juan-Pablo Montero (Pontificia Universidad Católica de Chile), Erica Studies), Ralf Martin (London School of Economics), Brian Murray Morehouse (EDF), Annie Petsonk (EDF), and Luca Taschini (London (Duke University), Michael O’Brien (EDF), Hyungna Oh (Kyung Hee School of Economics). University), Robert Parkhurst (EDF), Billy Pizer (Duke University), We sincerely thank representatives from ETS jurisdictions who Misato Sato (London School of Economics), Jonathan Schrag (EDF), shared their practical insights and knowledge related to designing PR Shukla (Indian Institute of Management), Thomas Sterner (EDF, and implementing ETS through meetings, interviews, and review Collège de France and University of Gothenburg), Jan-Willem van of the Handbook. These include John Storey-Bishoff (Alberta); de Ven (European Bank for Reconstruction and Development), Stacy Nicole Steinweg (Australia); Edie Chang, Mary-Jane Coombs, Sean VanDeveer (University of New Hampshire), Derek Walker (EDF), Donovan, Jason Gray, Ray Olsson, Rajinder Sahota and Mark Wenzel Bryony Worthington (EDF), Libo Wu (Fudan University), Matthew (California); Wang Shu (China); Maja Dittel, Johannes Enzmann, Zaragoza-Watkins (EDF), Xiliang Zhang (Tsinghua University). Hana Huzjak and Dalwon Kim (European Commission); Matti Kahra We wish to thank the following for research assistance: Margaret (Finland); Cécile Goubet, Yue Dong, Maxime Durande, Anais Maillet Cress, Rafael Grillo, Michael O’Brien, and Nicolas Taconet (EDF, USA) and Dimitar Nikov (France); Maria Martin (Ireland); Giulia Dramis and Iurii Banshchikov (ICAP Secretariat). We wish to thank the follow- (Italy); Gulmira Sergazina (Kazakhstan); Hyungsup Lee (Korea); ing for additional editorial assistance: Anna Brinsmade, Daniel Francis, William Lamkin and Will Space (Massachusetts); Erik van Andel Dana Miller, and Elizabeth Petykowski (EDF), Stephanie Gleissner and (the Netherlands); Lois New (New York); Peter Gorman, Amelia Charlotte Unger (ICAP Secretariat), and Inge Pakulski. Guy-Meakin, Ted Jamieson, Eva Murray, Matt Paterson, Kate Ryan and Nigel Searles (New Zealand); Dag Svarstad (Norway); Jonathan We thank our colleagues from the World Bank Group and the ICAP Beaulieu, Jean-Yves Benoit and Claude Côté (Québec); Hanna-Mari Secretariat who reviewed the report and provided helpful input and Ahonen (Sweden); Laurence Mortier, Reto Schafer and Sophie feedback: Adrien de Bassompierre, Pauline Maree Kennedy, Tom Wenger (Switzerland); Masahiro Kimura, Sachiko Nakamura and Yuko Kerr, Michael McCormick, Maja Murisic, Grzegorz Peszko, and Bianca Nishida (Tokyo); Ben Rattenbury (United Kingdom); and represen- Ingrid Sylvester (World Bank), and Alexander Eden, Michel Frerk, Aki tatives of the German Federal Ministry for the Environment, Nature Kachi, Lina Li, Marissa Santikarn, Camille Serre, Kateryna Stelmakh, Conservation, Building, and Nuclear Safety (BMUB), the German and Kristian Wilkening (ICAP Secretariat). ICAP staff also provided Emissions Trading Authority (DEHSt) and the Spanish Office of Climate significant research input and illustrations. Change. ICAP would also like to thank the BMUB for their financial contribu- We wish to acknowledge additional input and peer review provided tion to this report. by: Soffia Alarcón Diaz (Mexico), Emilie Alberola (Institute for CONTENTS III CONTENTS SYNTHESIS – Emissions Trading: