Thread by @d_le_nen

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann The article could be more readable and I don't find everything in it logically convincing.
Basically, the authors propose a much more complicated double cap system, then eliminating the cap of the cap system by introducing price limits, then proposing a couple of patches to ->

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann -> deal with the problems arising from those modifications.
The core topic is the long overdue introduction of fossil fuels for heating and transport into the #EUETS.
The main problem here being the difference in abatement costs for the two large sectors electricity/industry ->

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann -> and transport/heating.
A single carbon price would mean a sudden very strong price pressure in the first sector, forcing a fast transition there, while the carbon price in the second would be too low to cause fast changes for quite some time.
The first is correctly stated-->

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann --> as undesirable, because any fast transition mean high transition losses of capital.
The second though is unlogically called undesirable because of the high emission costs put on households, while the contrary is true: in the two price system, the costs for households are ->

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann -> much higher and any social compensation system has to be much more pronounced.
Then there are the patches, the price-balancer, -stabilizer and -amplifier.
The 2nd adresses a problem met by either a one- or two price system: volatility and unprojectibility of prices. ->

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann -> The authors propose minimum and maximum prices, which effectively remove the cap of the cap system, because to prevent the price from rising too high, (politically or whatever) additional allowances are to be inserted into the market. Same problem with the German ->

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann -> "cap system" for fuels. The goal should not be to limit the allowance price in absolute terms, but to limit speculative short-term volatility, because we don't know the optimal allowance price. So any measure should work against the price rising too fast. Hedging of ->

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann -> allowances is good, because emissions happen later, thus global warming is postponed a little.
To curb speculation, the same can be done as everywhere else: a Tobin tax on every transaction.
How can we keep one price while avoiding a price shock in electricity/industry ? ->

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann -> 1. Of course border adjustment.
2. Efficiency investment subsidies to help with a fast transition.
3. Free allowances for a limited time. We have that already. It just has to be adusted.
The problem of longterm carbon price planning is unsolvable. Even a carbon tax scheme ->

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann -> with prescribed tax increases would have to adjust the taxes, if emission targets are not met! Some things, that can be done tough:
1. Provide for carefully calculated longterm price expectations.
2. Increase industry resilience, i.e. diversification, high proprietary ->

@BrigitteKnopf @PIK_Climate @Bruegel_org @GeorgZachmann -> capital, enforcing of pricing in high carbon price risk.