Accounting for early action in the European Union Emission Trading Scheme

In the context of emission markets, failure to include early action (EA) as a criterion when sharing out the reduction effort may be unfair. This paper presents (1) a method based on index decomposition that seeks to quantify EA and (2) a method for determining effort sharing considering EA. It is shown that, in the case of European industry (EU-15) and for the period 1995-2005, EA accounted for a reduction of 21% in energy-related CO2 emissions. Considering two alternative schemes for sharing out the reduction effort in European industry, equal shares (all industries in all countries reduce their emissions by the same percentage) and taking EA into account, we find that Spain, Austria, Italy, the United Kingdom and Sweden would be better off under an equal shares scheme as opposed to one that takes EA into account. The efforts of the remaining countries would be greater than if EA was taken into account. An equal shares scheme would also greatly benefit the textile, non-metallic mineral, paper and other industries, and would be particularly detrimental to the chemical, non-ferrous and other metal, and engineering industries. (C) 2009 Elsevier Ltd. All rights reserved.