Effectiveness in Climate Regulation: Simultaneous Application of a Carbon Tax and an Emissions Trading Scheme to the Offshore Petroleum Sector in Norway

Abstract

The present article discusses effectiveness in environmental regulation when two instruments, a carbon dioxide tax (CO2 tax) and an emissions trading scheme (ETS), are applied concomitantly to the same activity. The Norwegian regulation of the CO2 emissions from the upstream petroleum sector is taken as an example since it submits this sector to both the payment of a CO2 tax and the obligation to surrender emissions allowances under the EU ETS since Norway joined the scheme in 2008. The specific approach to this double regulation consists in adjusting the rate of the CO2 tax according to the price for the EU allowances in order to obtain an overall CO2 price. The article examines how the adjustment mechanism operates and which conclusions can we drawn in terms of effectiveness of climate regulation, ie at the level of the design, the implementation and the effects. Finally, it discusses the need for governments to use taxation as a supplementary tool to the EU ETS in a context of low allowances price.

Keywords: climate change, EU ETS, carbon price, taxation, effectiveness