Study into impact of the EU trading scheme on British companies
– Focus on a single or several companies
– Impact in terms of profitability
o Constraint of having to operate under this regulation with limited number of credits vs. ability to sell off left over credits
– Have some companies made an effort to become green as a consequence? How has this affected their reputation / level of success?
– Effect on airline companies
Dissertation proposal
The Impact of the EU Emission Trading Scheme on the British Aviation Industries
Research problem
Over the course of the 20th century, Europe experienced a rise in carbon emissions and an increase in Green House Gases (GHG) (Alongi, 2011), contributing to the worldwide phenomenon of global warming. At present, countries within the EU are responsible for about 11% of the world’s greenhouse gases emitted each year. As a consequence, the European Union (EU) has been trying to cap carbon emissions and, committing to reduce emissions to 80% of the level in the 1990s by 2020. One of the initiatives it has undertaken to meet its carbon mitigation objectives is the EU Emissions Trading System (EU ETS).
With the rise in carbon emissions and increase in Green House Gases (GHG) such as carbon dioxide, nitric oxide, water vapour, sulphates and soot particles (Alongi, 2011) in Europe over the past century, which are contributing to global warming, the EU has been trying to cap carbon emissions. The EU Emissions Trading System (EU ETS) is the tool designed to meet carbon mitigation objectives. It is the largest emission trading system operating at present with 11,500 installations, which accounts for 40% of the EU’s emissions (Laing, 2013). Its main aim is to reduce harm to the environment by capping the amount of greenhouses/Co2 industries are allowed to emit, with the aim of reducing their production of harmful gases each year.
As the ETS has now existed for almost a decade, it is now possible to look at it critically and to assess its effectiveness. The aim of this study is twofold. First, it will assess the scheme’s effectiveness in contributing towards decreased levels of emissions in the EU. Second, it will explore the impacts of the scheme on European businesses, which must now abide by its rules. Areas of impact to be explored include financial success, ways of operating and company reputation.
Research objectives / questions
The main objectives of this research are to look at the effectiveness of the EU ETS scheme with regard to meeting its emission reduction targets and to assess the impacts it is having on businesses. More specifically, the study aims to:
Work out the effectiveness of the scheme in achieving its goal of cutting carbon emissions by:
– Assessing the effectiveness of the method using statistical data
– Exploring the incentives given to promote living green
– Exploring pitfalls in the system
Assess the impact of the scheme on businesses in terms of:
– Financial wellbeing
– The way they operate
– Overall success
Questions that will be addressed in this project:
– Has EU ETS contributed to a reduction in carbon emissions?
– What has been the impact of the EU ETS in terms of profitability and financial success?
– Have EU ETS incentives encouraged investment in low-carbon technology and have companies become greener as a consequence?
– How has investment in low-carbon technology affected their reputation?
–
Key literature
EU Emissions Trading System has two main objectives both with an aim of reducing damage to the environment: to decrease GHG emissions effectively by increasing the price of harmful fuels and to encourage investment in low carbon technologies by way of incentives, making industry more energy efficient. It implements a protocol that is legally binding for EU Member States (Alongi, 2011). First, it monitors and collects data on the greenhouse emissions. Then it sets itself an annual cap and lowers the limit each year. Additionally, based on the cap set, the operators are assigned a tradable emission allowance of carbon dioxide equivalent during a set period in order to meet requirements of the directives set (Directive 2003/87/EC, Article 3) ( Alongi, 2011). Each year, the cap-and-trade system enables the operators to give up their allowance equal to tons of greenhouse gasses that they emit. Under the ETS system and the Kyoto protocol mechanism, operators can buy allowances on the carbon market, when they have exceeded their limit, or sell credits if they have not used up their allowances. These allowances can be traded immediately and on the spot or for future use (Alongi, 2011). National Allocation Plans (NAPs) allocated the percentage of credits each operator was allowed during 2008-2012 and any entitlements that remained unused would be transferred to the 2013-2030 period (EUROPA, 2005).
The ETS uses Coase Theorem, theorised by Ronald Coase in 1960, which allocates property rights to clean air and charges people privately for their right to pollute it. ETS allows firms to reallocate pollution among themselves through trade; however, it has been under scrutiny since it has not included shipping and aviation and many chemical industries (19) (Alongi, 2011). According to Alongi (2011) Chinese airlines could be charged three billion yuan per year by 2020, which is further highlighted by print out that the aviation industry is not very profitable and the cost is likely to be passed on.
In order to assess the performance of the scheme, studies have looked at mechanism design, effectiveness, and political trade-offs, resulting in new carbon pricing policies (Laing, 2013) affecting the everyday lives of ordinary people.
Regarding the aviation industry, the Commission is concerned that as the industry grows, the increase in level of gases it emits will annul the impact of the emission reductions made by other industries, and as a result has decreased carbon dioxide cap by another five percent for the period 2013-2020. Furthermore, from 2012 aircraft operators must land or take off from airports in the European Economic Area. All these restrictions have financial implications.
…
Methodology
Research for this study will consist primarily of secondary research carried out through literature reviews of articles, journals and websites on EU Emission Trading Scheme (ETS). It will carry out a comparison of estimates of emission reductions from EU ETS econometric modelling, the dynamic panel data model and Anecdotal evidence. It will examine studies that estimate the impact of EU ETS on investment and innovation activities by comparing surveys of manufacturing companies, German power sector, case studies in France, Germany, Netherlands and UK and other EU based surveys. Analysis of data and appropriate tables and graphs will be illustrated. Additionally, to help assess and provide further evidence for the impact of the ETS on businesses, there may be scope for conducting some primary research consisting in interviews with staff from businesses affected by the scheme.
There will be no ethical issues since this research is carried out based on secondary research, so no permission will be required from individuals.
Word count 908
Research timetable
Task Date to be completed by
Research proposal 24th March 2014
Literature review 24th March 2012
Ethic approval form 11th April 2014
Data collection 16th May 2014
Analysis of data 25th June 2014
Draft report 25th August 2014
Supervisor’s review 10th September 2014
Final draft 10th November 2014
Binding report 1st December 2014
Dissertation submission 12th of December 2014
References
Laing,T. ,Sato,M., Grubb,M., Comberti,C., 2013. Centre for Climate Change Economics and Policy. Working paper No. 126. Grantham Research Institute on Climate Change and the Environment Working Paper No. 106. Assessing the effectiveness of the EU Emissions Trading System.
[PDF] Available at:<
http://www.cccep.ac.uk/Publications/Working-papers/Papers/120-129/WP126-effectiveness-eu-emissions-trading-system.pdf >[Accessed 18.3.14]
Alongi, F., 2011. The Emission Trading Scheme and its possible consequences for airlines. [Online] Available at:<
http://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=10&cad=rja&uact=8&ved=0CGcQFjAJ&url=http%3A%2F%2Fwww.eala.aero%2Flibrary%2FEmission%2520Trading%2520Scheme.Francesco%2520Alongi.doc&ei=F5opU9HUL8axhAe6kYDIDw&usg=AFQjCNGoVBTEKptELtgBYLZuLFoIBhueIg&bvm=bv.62922401,d.bGQ >[Accessed 18.3.14]
Carbon trust, 2013 . Eu Emissions Trading Scheme (EU ETS). Guide to the EU Emissions Trading Scheme (EU ETS) and its impact on business [Online] Available at:< http://www.carbontrust.com/resources/reports/advice/eu-ets-the-european-emissions-trading-scheme >[Accessed 18.3.14]
Alongi, F., 2011. Emission Trading Scheme.francesco Alongi. [Online] Available at:< http://byteboss.com/view.aspx?id=21784&name=Emission+Trading+Scheme.Francesco+Alongi >[Accessed 18.3.14]
Carbon Trust, 2013. Guide to the EU Emissions Trading Scheme (EUETS) and its impact on business. [Online] Available at:<
https://www.google.co.uk/search?q=THE+EMISSION+TRADING+SCHEME+AND+ITS+POSSIBLE+CONSEQUENCES+FOR+AIRLINES+++Francesco+Alongi%2C+publication+date&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a&channel=sb&gfe_rd=cr&ei=pKIpU6XAFYLY8gekq4CQCQ >[Accessed 18.3.14]
Emerald insight, 2014. [Image] Available at:<
http://www.emeraldinsight.com/content_images/fig/3430070304005.png >[Accessed 20.3.14]
COM (2001) 581, OJ C 75E, 26/03/2002.
EUROPA – Press Release- Questions & Answers on Aviation & Climate Change, MEMO/05/341, 27 September 2005, available from:
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/05/341&format=HTML&aged=0&language=EN&guiLanguage=en.
Directive 2003/87/EC, Article 3.
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