Evaluation and Further Development of BEHG and EU-ETS 2

Duration: 2024-2027

Client: German Emissions Trading Authority (DEHSt), Federal Environment Agency (UBA)

Project Team: The Climate Desk, VEYT, IW, CTE

This project aims to support the German Emissions Trading Authority (DEHSt) and the Federal Ministry for Economic Affairs and Climate Protection (BMWK) in the ongoing evaluation and further development of the German Emissions Trading System (BEHG) and the European Union Emissions Trading System (EU-ETS 2). The focus of the project is on the economic evaluation and policy analysis of these systems as climate protection instruments, particularly in light of their expanding role post-2025 and the introduction of EU-ETS 2 from 2027.

Key Activities:

  • Price and Impact Analysis: Examining the price formation mechanisms and price developments within the EU-ETS 2, including the use of economic models to simulate various scenarios. This will involve assessing the impact of factors such as carbon price elasticity, avoidance costs, and the technological readiness of sectors impacted by the EU-ETS 2.
  • Market Structure Analysis: Investigating the behavior of auction participants and regulated entities under the BEHG and EU-ETS 2, analyzing market concentration, and potential challenges with auctioning mechanisms and price formation.
  • Distributional Impact Assessment: Conducting socio-economic impact assessments to understand the distributional effects of CO2 prices, particularly focusing on vulnerable groups like small businesses, households, and transport users.
  • Ad-hoc Scientific Advisory Support: Providing expert advisory services on emerging topics related to the BEHG and EU-ETS 2, such as options for carbon leakage protection and the economic implications of proposed price mitigation measures.
  • Stakeholder Communication: Organizing events and preparing reports to communicate findings and foster discussion among policymakers, stakeholders, and experts, including the presentation of results at key academic and policy conferences.
  • Final Report and Recommendations: Developing a comprehensive final report with clear recommendations for policy adjustments and improvements to the EU-ETS 2 and BEHG, ensuring alignment with the EU’s 2040 climate target.