Legal limitations in the establishment of a carbon price floor in the European Union

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Julkaisun nimi: Legal limitations in the establishment of a carbon price floor in the European Union
Toissijainen nimi: Governance and judicial aspects in the establishment of a carbon price floor in the European Union
Tekijä: Hocksell, Tatu
Muu tekijä: Helsingin yliopisto, Oikeustieteellinen tiedekunta
University of Helsinki, Faculty of Law
Helsingfors universitet, Juridiska fakulteten
Julkaisija: Helsingin yliopisto
Päiväys: 2019
Kieli: eng
Opinnäytteen taso: pro gradu -tutkielmat
Oppiaine: Ympäristöoikeus
Environmental law
Tiivistelmä: Tiedekunta/Osasto Fakultet/Sektion – Faculty Faculty of Law Laitos/Institution– Department Tekijä/Författare – Author Tatu Hocksell Työn nimi / Arbetets titel – Title Governance and judicial aspects in the establishment of a carbon price floor in the European Union Oppiaine /Läroämne – Subject Commercial Law Työn laji/Arbetets art – Level Master's Thesis Aika/Datum – Month and year November 2018 Sivumäärä/ Sidoantal – Number of pages XIV + 71 Tiivistelmä/Referat – Abstract The European Union’s Emission Trading Scheme (ETS) has been suffering from oversupply of the allowances and therefore has not resulted in the desired price levels. The EU has reformed the ETS by creating a Market Stability Reserve that will remove the excess allowances from the market, starting at the beginning of 2019. In spite of that, some member states fear that this will result in allowance prices that are too low to encourage investment to low-carbon technology and facilitate the coal to gas switch. Discretionary price-based mechanisms, such as a carbon price floor and a corridor, with an explicit carbon price objective are currently being discussed and promoted by some member states of the EU, such as France. Such systems would alter the very nature of the existing EU ETS as a quantity-based market instrument. In a price-based system, the carbon price is decided politically rather than by market forces. A carbon price floor (CPF) means modifying an emission trading system by implementing an instrument that puts a minimum price for emitting a tonne of carbon dioxide, in contrast with the price that is determined by supply and demand of allowances in an emission trading system. A CPF can be implemented by placing a tax on top of the allowance price or imposing a minimum price in the auctions. The only existing price-based mechanism that correlates with the EU ETS in an EU member state is the UK's national carbon price floor implemented in 2013. A few other initiatives for a price floor are being discussed, one being the national carbon price floor (CPF) in the Netherlands. Currently there are no examples in the EU of an operational regional price-based mechanism covering two or more countries. Price management however has been implemented in some other regional emissions trading systems in the United States, like the Californian ETS (Western Climate Initiative) and the Regional Greenhouse Gas initiative. Some EU-member countries, especially Poland, are hesitant to increase the ambition of the EU’s climate policy goals and therefore an EU-wide carbon price floor is not likely in the coming years. The following three research questions are studied in this thesis. What is the correct legislative procedure for implementing an EU-wide carbon price floor? Can the carbon price floor be implemented regionally and what are the boundaries from EU legislation’s perspective? Can the carbon price floor be implemented by using enhanced cooperation? An auction reserve price that acts as a minimum price in the EUA auctions could be implemented as an EU-wide instrument by amending the ETS Directive and Auctioning Regulation. Legislation needs to be approved by qualified majority in the Council of the European Union, similarly as the decision establishing the Market Stability Reserve. A carbon price support rate that is a tax on the top of the European Union's allowance price to guarantee a minimum price would require a totally new Directive or a new regulation in the EU as it is explicitly outside the scope of ETS Directive and the Auctioning Regulation. Implementing an environmental tax in the EU requires unanimity in the Council. An auction reserve price cannot be implemented regionally as the auctioning rules are harmonized and the auction reserve price would hamper the internal market and affect the free movement of goods and capital. A carbon price support rate is possible among two or more member states as taxation affects only domestic entities. This could be implemented by signing a memorandum of understanding (MoU) between member states or by using an EU instrument called enhanced cooperation. An MoU approach is weak, as the participating member states could withdraw easily from the MoU. Implementation of a tax through enhanced cooperation requires at least nine member states to agree on a joint system. The fulfilment of the enhanced cooperation requirements is uncertain and the arrangement has to be approved by the European Commission and the European Parliament. Avainsanat – Nyckelord – Keywords Carbon price floor, enhanced cooperation, TFEU Article 192, competence, special legislative procedure, ordinary legislative procedure, auction reserve price, top-up tax Säilytyspaikka – Förvaringställe – Where deposited Helsinki University Library Muita tietoja – Övriga uppgifter – Additional information


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