24 January 2001 • CO2 Emissions Trading – An Instrument for the Austrian Climate Strategy • Angela Köppl, Daniela Kletzan

International commitments constitute a considerable challenge for the climate policy pursued in Austria. In 1997, the first obligatory targets for greenhouse gas emissions were defined by the Kyoto Protocol, and Austria, within the scope of an internal EU burden sharing agreement, undertook to reduce its emissions by 13 percent below 1990 levels.

The Kyoto Protocol raised great expectations with regard to reducing anthropogenic effects on climate change. In November 2000, the Sixth Session of the UN FCCC Conference of the Parties (COP 6) was held in The Hague. Its outcome is likely to affect the probability of whether the Kyoto Protocol will be ratified.

Achieving the emission targets is to be facilitated by the introduction of so-called flexible mechanisms laid down in the Kyoto Protocol, which include emissions trading. A key aspect of emissions trading is its economic efficiency, i.e., it provides a market mechanism to ensure that necessary reductions will be made where their costs are lowest. Emissions trading is also effective from an environmental policy point of view because it makes sure that the specified environmental goal will be attained. The trade in emissions permits offers an incentive to exceed individual goals and thus be able to sell surplus permits. This provides an incentive to search for cost-effective ways to reduce emissions, which in turn promotes technical change and the development of environmentally friendly technologies.

Key aspects of the framework for a national CO2 emissions trading system are the sectoral emission structure and existing taxes on energy. From the sectoral emission structure in Austria it can be seen that CO2 emissions in manufacturing are concentrated on a few sectors and a small number of companies.

With regard to energy-related taxes, consideration should be given to how taxation can be used for companies and sectors which do not participate in the emissions trading system.