Socio-economic research in support of climate policy development: Mistra's Research Program Clipore.

Mistra's Climate Policy Research Program, Clipore, is one of the largest research programs directed to support international climate policy development, involving research groups in Sweden, Norway, United States and India. It has been running from 2004 to 2011 with a budget of more than 100 MSEK (15 M USD). The paper briefly describes the program and its outcomes in relation to climate policy development. Discussion focuses on how the program has been able to be in the front of and include the development of emissions trading systems in Europe and the United States and how the program has been able to follow and produce inputs to the agenda of the United Nations Framework Convention on Climate Change (UNFCCC). The paper also discusses how the program has managed to present its outcomes and maintain an active dialogue with the various stakeholders. The paper emphasises options and obstacles in the communication between science and policy.

Short-run allocation of emissions allowances and long-term goals for climate policy.

We use economic analysis to evaluate grandfathering, auctioning, and benchmarking approaches for allocation of emissions allowances and then discuss practical experience from European and American schemes. In principle, auctions are superior from the viewpoints of efficiency, fairness, transparency, and simplicity. In practice, auctions have been opposed by important sectors of industry, which argue that carbon pricing without compensation would harm international competitiveness. In the European Union's Emissions Trading System, this concern led to grandfathering that is updated at various intervals. Unfortunately, updating gives industry an incentive to change behavior to influence future allocation. Furthermore, the wealth transferred to incumbent firms can be significantly larger than the extra costs incurred, leading to windfall profits. Meanwhile, potential auction revenues are not available to reduce other taxes. By circumscribing free allocation, benchmarking can target competitiveness concerns, incur less wealth transfer, and provide a strategy consistent with transitioning to auctions in the long run.

What have we learnt from the European Union's Emissions Trading System?

The EU Emissions Trading System (ETS) demonstrated the ability to design and launch a large-scale trading system in a short period of time. The path from initial reticence about emissions trading to implementation of the world's largest program is an important history. Three issues play a large role in the evaluation of the program to date and its on-going development: allocation plans, cost uncertainty, and leakage of emissions to abroad. Decisions in Phase I and II (2005-2012) were responsive to questions of political feasibility and implementation, but some of these decisions including allocation in particular will be substantially revised in Phase III (2013-2020).