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The issue of managing costs in an emissions-trading program a controversial one, with short-run and long-run dimensions. Short-run disruptions in fuel supply due to natural or geo-political events can cause price fluctuations in fuel markets that have negative consequences on the economy, so in the short run policy makers might want to ameliorate these price fluctuations. Another concern has to do with cost management in the long run, where the issue has often played a role as a political proxy for the level of economic commitment to climate policy. Of course, the ultimate cost management tool is an emissions tax because the cost of the tax is predetermined and not subject to vacillations of an allowance market. We develop another idea, which is symmetric cost management within an emissions-trading program, in some detail. This approach would place a 'collar' on prices by combining a high-side price safety valve with a price floor. By providing for a ceiling and a floor on allowance prices, the mechanism we propose preserves incentives for investors to invest in clean technologies, which helps address the long-run issue of the cost of emissions reductions, and also guards against short-run variability. Such a mechanism could help the world to achieve the near term incentives to trim emissions that come with putting a price on CO2 with the longer run gains that come from greater investment in clean technologies such as renewables that might spark cost-reductions and technological breakthroughs that will be necessary to fight global warming effectively ; The issue of managing costs in an emissions-trading program a controversial one, with short-run and long-run dimensions. Short-run disruptions in fuel supply due to natural or geo-political events can cause price fluctuations in fuel markets that have negative consequences on the economy, so in the short run policy makers might want to ameliorate these price fluctuations. Another concern has to do with cost management in the long run, where the issue has often played a role as a political proxy for the level of economic commitment to climate policy. Of course, the ultimate cost management tool is an emissions tax because the cost of the tax is predetermined and not subject to vacillations of an allowance market. We develop another idea, which is symmetric cost management within an emissions-trading program, in some detail. This approach would place a 'collar' on prices by combining a high-side price safety valve with a price floor. By providing for a ceiling and a floor on allowance prices, the mechanism we propose preserves incentives for investors to invest in clean technologies, which helps address the long-run issue of the cost of emissions reductions, and also guards against short-run variability. Such a mechanism could help the world to achieve the near term incentives to trim emissions that come with putting a price on CO2 with the longer run gains that come from greater investment in clean technologies such as renewables that might spark cost-reductions and technological breakthroughs that will be necessary to fight global warming effectively

The increase in consumer demand and production capacity of economic entities has a negative impact on the ecological balance in nature. One of the main tasks of the European Union in recent years has been to reduce greenhouse gases and to create certain mechanisms in this direction. These policies create preconditions for reorganization of the activities of enterprises, which requires provision of information in the short, medium and long term. Accounting has a certain place in this regard, which should provide the necessary information for their management.

VTT Tiedotteita - Research Notes 2341 ; During 1995-2005 the Nordic energy system has experienced two major changes, the opening of the electricity market for competition and emissions trading within the EU. The European Union's emissions trading scheme (EU ETS) that began operating at the beginning of 2005 has weakened the competitiveness of Finnish electricity production and raised electricity prices. Most electricity producers have accumulated large profits thanks to higher prices. The payers have been nearly all electricity users. This report studies the effects of emissions trading on the electricity market and the functionality of the power market. Very little investment has been made in power production capacity in the Nordic countries over the past ten years. Considerable increases have mainly been made in Danish wind power capacity. Simultaneously, the total consumption of electricity and maximum system load have increased more than installed capacity has grown. In the next few years the power and energy balances may be threatened. In previous years, Finland has often been separated as its own market price area on the Nordic power exchange. The formation of price areas has been affected by the limited capacity in transmission interconnectors, network reparation work and the operating method of the Swedish national system operator, Svenska Kraftnät (transferring domestic bottlenecks to the borders). This study reviews the scale of price differences and the effect on market activities. On the common Nordic electricity market, Finnish coal and peat condensing power capacity is mainly used during poor precipitation years. These plants were once built for base load production. Carbon dioxide emissions trading has further weakened the competitiveness of these plants. The biggest problem for the Nordic power exchange, Nord Pool, is regarded to be that market concentration in electricity production is high. Market concentration decreases the investment willingness of existing players as new power production capacity would lower electricity prices. There are also high barriers for market entry. Due to emissions trading and the good precipitation situation in the Nordic countries, a record level of electricity was imported to Finland in 2005, approximately one-fifth of electricity consumption. Approximately two-thirds of the imports came from Russia. This study makes several improvement suggestions that would affect market activities. These include clearer financing principles for building new transmission lines, increased Nordic cooperation in power exchange surveillance and restraining the growth in electricity imports. The study also suggests that players who gain windfall profits should be obliged to maintain otherwise possibly unproductive condensing power plants in reserve.

Intro -- THE ROLE OF AUCTIONS IN EMISSION ALLOWANCE ALLOCATIONS FOR GREENHOUSE GASES -- THE ROLE OF AUCTIONS IN EMISSION ALLOWANCE ALLOCATIONS FOR GREENHOUSE GASES -- CONTENTS -- PREFACE -- Chapter 1 TESTIMONY OF IAN BOWLES, SECRETARY OF ENERGY AND ENVIRONMENTAL AFFAIRS, BEFORE THE SELECT COMMITTEE ON ENERGY INDEPENDENCE AND GLOBAL WARMING -- Auction v. Allocate - Protecting the Public's Interest -- Use of Auction Proceeds - Maximizing Ratepayers Savings and Environmental Benefits -- Lessons for a Federal Program -- Chapter 2 WRITTEN TESTIMONY OF DALLAS BURTRAW, BEFORE THE "CAP, AUCTION & TRADE HEARING: AUCTIONS AND REVENUE RECYCLING UNDER CARBON CAP AND TRADE" -- Summary of Testimony -- 1. What are the efficiency benefits of robust auctions of allowances under a cap-and-trade system? -- 2. Would free allocation of allowances significantly reduce economic impacts on consumers, as compared with a full auction of allowances, and if not, why not? -- 3. To what extent do full or robust auctions deprive polluters of the capital needed to invest in achieving substantial reductions in greenhouse gas emissions? -- 4. What proportion of allowance value is needed to compensate polluting firms for the economic impacts of climate change legislation? -- 5. How feasible is it to design an allocation formula that could efficiently target compensation to those firms adversely affected by climate change legislation and avoid windfall profits? -- 6. To what extent are the economic impacts of legislation on polluting firms likely to be spread among shareholders who hold diversified portfolios, and how does this affect the rationale for or against seeking to compensate firms? -- End Notes -- Chapter 3 TESTIMONY OF ROBERT GREENSTEIN, CENTER ON BUDGET AND POLICY PRIORITES, BEFORE THE "CAP, AUCTION & TRADE HEARING".

To meet its commitment under the Kyoto Protocol, the EU plans to implement an emissions trading system with grandfathering of allowances. Besides having distributional impacts, the choice of the grandfathering scheme may affect efficiency if firms anticipate how future allocations depend on upcoming decisions. In this paper, we determine central design rules for optimal grandfathering within a simple two-period model. We find that for (small) open trading systems, where allowance prices are exogenous, first-best second-period grandfathering schemes must not depend on firm-specific decisions in the first period. Second-best schemes correspond to a Ramsey rule of optimal tax differentiation and are generally based on both previous emissions and output. However, of closed emissions trading systems, i.e. endogeneous allowance prices, first- and second-best rules coincide and must not depend on previous output levels. They consist of an assignment proportional to the emissions in the first period plus a term which does not depend on firm-specific decisions in either of the two periods.