Tradable performance standards for a greener transportation sector: an economists’ appraisal of the German greenhouse gas mitigation quota

Abstract

Background

The greenhouse gas (GHG) mitigation quota is a unique instrument in Europe that redistributes money from high emission to low emission fuel markets while forcing fuel distributors to reduce the average emissions of their fuels. This paper presents the design of the German 2022 GHG quota, places it in the context of environmental policy instruments, and examines its impact on the affected fuel markets in relation to other environmental policy instruments. We aim to provide insights that can be applied in industry and policymaking, and to provide a basis for further research, to highlight GHG quota trading as an alternative to allowance trading and carbon taxes. Field research was conducted in the form of expert interviews. Furthermore, intermediaries and brokers were contacted via email and asked for transaction data. In addition, a qualitative literature review was conducted and publications of responsible authorities as well as relevant legal texts were used to gather information.

Results

We find that the GHG quota trading overlaps with the structures behind emission standards and emission trading schemes and, therefore, falls under the category of tradable performance standards. However, it also contains aspects of a subsidy and interacts directly or indirectly with several different markets.

Conclusions

While the GHG quota trading system shows potential as an environmental policy tool, its effectiveness is hindered by market complexities and external disruptions. Addressing these challenges through targeted research and policy adjustments could enhance its impact and alignment with broader climate goals.