8 April 2002 – A conclusion drawn from the most recent simulation, modelling the potential for emissions trading within Europe is that, compared to the no trading scenario, compliance savings of €80bn are possible.

The results of the third stage of the Greenhouse & Energy Trading Simulations (GETS3) led by the union of the Electricity Industry (Eurelectric) were published Friday and show that emissions targets would not be met in full and compliance costs would be the highest among the scenarios, if no trading was permitted.

Eurelectric said, “GETS1 & 2 had shown that the design of an emissions trading system can be as significant for results as trading behaviour itself. GETS3 was designed to see how compliance costs were affected and distributed by trading activity and scheme design.”

GETS3 indicated that full emissions trading between all industrial sectors in the EU could reduce overall compliance costs for the period to 2017 by some €80bn. It showed that withdrawing countries from the trading system has a major impact on cost and that limiting trading to the biggest four countries leaves compliance costs for the whole system 6-8 times higher than with all-EU trading.

Costs were radically increased when a concrete ceiling was imposed on the percentage of the target that can be traded and setting caps on a per-unit output rather than an absolute basis can have major cost implications.

GETS1 & 2 were carried out in 1999 and 2000 respectively by UK-based consultants Environmental Resources Management (ERM). 23 energy or industrial companies and associations sponsored the third stage of the exercise. It is a flexible scenario- based model incorporating a vast amount of information from 20 countries (the EU-15 plus a number of potential European GHG trading partners) and including sectorial energy demand and GHG abatement data for the electricity industry and all manufacturing industry broken down into nine sectors.

It allows permits to be allocated based on “Grandfathering” (historical emissions or auctioning (as has just taken place in the UK). Plus any combination of design factors and constraints – such as banking credits, carry-over constraints, the gas to be included, timing and length of commitment periods, penalties for non-compliance.

The results of the GETS3 study can be downloaded free at www.eurelectric.org