Browsing by Author "Takamäki, Saana"

Anthropogenic greenhouse gas concentrations have raised alarmingly high in the atmosphere during the last century and there is an urgent need for cost-effective climate policies to tackle climate crisis. European Union’s Emission Trading System (EU ETS) is the major market instrument for decreasing the emitted greenhouse gas emissions cost-effectively in the European Union. In addition, EU member states apply complementary and partly overlapping policies with EU ETS. Such demand-reducing policies do not affect the total amount of emissions at the EU level when the emission cap is binding because of the observed “waterbed effect”. However, the effectiveness of overlapping demand-reducing policies has changed due to the implemented Market Stability Reserve, which absorbs allowances from the market while endogenizing the emission cap. Furthermore, market agents can unilaterally cancel emission allowances from the market to tighten the emission cap. Previously Finnish Government committed to phase-out coal by 2029 in order to decarbonize the national energy system. However, there is no full certainty regarding to what extent does the Finnish coal ban reduce total emission at the EU level. Thus, the aim of this thesis is to quantify the cumulative impact of Finnish coal ban and its effectiveness to reduce emission at the EU level. This thesis determines how many allowances shall be unilaterally cancelled at different years to guarantee that the coal ban has a full effect on the total emissions at the EU level. A scenario analysis is conducted through model simulations to showcase how the effectiveness of coal ban could be maximized while minimizing the costs related to unilateral cancellation. This thesis contributes to the limited literature on unilateral cancellations as an instrument to strengthen the effectiveness of overlapping demand-reducing policies within the EU ETS. The results show that the unilateral cancellation is more cost-effective when implemented after the MSR has stopped absorbing allowances from the market because until then, the unilateral cancellation policies are rather low in cost-effectiveness. In addition, earlier the coal phase-out policies are implemented the higher is the effectiveness of the coal ban due to the higher synergies between Market Stability Reserve and demand-reducing policies.