Raphael Trotignon is an environmental engineer from Mines de Nantes and a doctor of economics from Paris-Dauphine University.
He is currently co-leading the “CO2 price and low carbon innovation” program at the Climate Economics Chair, where he studies the various economic mechanisms that put a price on greenhouse gas emissions.
He published several articles on the subject and is the author, with Christian de Perthuis of the book “Le Climat/à quel prix” Odile Jacob Editions.
You just published a Policy Brief on the European carbon market reform, what are the main lessons?
The reform package that has just been adopted aims to push up the price on the market by reducing the quantity of permits. We quantified these effects using the Zephyr model developed at the Chair. With my co-author Simon Quemin, we show in this Policy Brief that the reforms lead to a significant reduction of the permit ceiling by 2030. In turn, this implies a strong rise in the permit price, which was historically at very low levels (less than ten euros per tonne over the last six years), and a drop in emissions that goes beyond the European target: almost -50% in 2030 compared to 2005! On the other hand, it should not be considered that this reform definitely “protects” the market from any future malfunction. In particular, we underline the very limited stabilizing capacity of the so-called “stability reserve” which will come into action in 2019.
These results are based on a modeling approach: what were the main challenges?
Our aim in building the Zephyr model, was to develop a theoretically coherent market description that allows us to account for the dysfunctions encountered in the past. One of the main challenges was the reconstruction of the evolution of baseline emissions over the period 2008-2017. This led us to include, in addition to the influence of the economic context, the effects of the strong development of renewable electricity and energy efficiency policies conducted without coordination with the management of the market. This lack of coordination is a key factor in the dysfunctions that the recent reform does not resolve, which raises governance questions.
Is the reform that has just been adopted a success?
In terms of greenhouse gas emissions, the European Union is in the process of strengthening its ambition. This takes the form of decisions on its quantified reduction targets, which are fairly visible and understandable to the general public. This also involves more technical and less visible decisions, which can be significant. The recent reform of the European carbon market belongs to the second category. It actually leads to an increase in European ambition, which goes beyond the stated goal in terms of emission reductions. The model therefore suggests that there is a potential for ratcheting up European climate ambition at relatively modest costs. On the other hand, we are much more skeptical about the stabilizing capacity induced by the reserve that will come into action. Our simulations show that this “autopilot” will not help stabilize the market in the event of future unanticipated shocks.