MEET

The EWI model MEET (Model of European Emissions Trading) is an optimization model for analyzing the price and emissions dynamics in the European Union Emissions Trading System. It determines cost-optimal strategies for emissions reduction, taking into account the behavior of market participants, and represents central political frameworks, including the Market Stability Reserve, the linear reduction factor, banking, and cancellation mechanisms. The model simulates the European allowance market both for the industry and energy sectors (EU ETS 1) and for buildings and transport (EU ETS 2).

MEET for Consulting and Research

The model simulates the European allowance markets ETS 1 and ETS 2, taking regulatory frameworks into account. It serves to simulate long-term price paths, assess regulatory interventions, and optimize emissions reduction strategies.

MEET in Practice:

• Regulatory impact assessment: analyze the effect of reforms (e.g. adjustments to the Market Stability Reserve, tightening of the linear reduction factor) on the price level
• Resilience and shock analysis: simulate the effects of exogenous shocks (e.g. economic crises, technology leaps) on allowance demand and price formation
• Behavioral market analysis: quantify the influence of limited foresight or specific hedging needs on the market outcomes

MEET in Detail

The model can be used both for the EU ETS 1 (industry & energy) and for the EU ETS 2 (buildings & transport). While the mathematical formulation remains the same in both cases, the model takes into account the respective specific regulatory frameworks. Methodologically, it is a discrete, dynamic optimization model that represents the rational decision-making behavior of agents under the assumption of perfect competition. A central feature is the explicit integration of EU regulation, for example the Market Stability Reserve or the cancellation mechanism. The objective function is the minimization of the discounted total costs of a representative agent over the observation period. These costs consist of abatement costs and allowance costs.

On this basis, the model answers, among others, the following questions: the optimal ratio between emissions reduction and the purchase of allowances on the basis of the respective marginal abatement costs (intertemporal decisions), the effects of political reforms such as adjustments to the Market Stability Reserve or the linear reduction factor on the long-term price and emissions development, as well as the optimal amount of allowances that market participants choose to hold beyond their immediate compliance needs (banking).

Schematic Representation of the Model

The model works with an annual temporal resolution. The simulation period is designed to be long-term and usually extends over several years in order to represent the long-term effects of the Market Stability Reserve as well as the linear reduction factor. The spatial resolution covers the entire scope of the EU ETS; since it is a market equilibrium model with a representative agent, the modeling is carried out at an aggregated European level.

With the help of the DIMENSION model, investment-related marginal abatement costs can additionally be determined, which feed directly into MEET.