The EU emissions trading system (EU ETS) is a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. It is the world's first major carbon market and remains the biggest one. The EU Emissions Trading System (EU ETS) • The EU ETS is the cornerstone of the European Union’s drive to reduce its emissions of man-made greenhouse gases which are largely responsible for warming the planet and causing climate change.
This report analyses the implications for the Phase II carbon market and the resulting industrial abatement incentives and the wider lessons to be learned from the allocation process. This report, based on collaborative research with Climate Strategies, examines the workings of the EU ETS to date and offers analysis and recommendations on its future development.
The study identifies seven key challenges to overcome for the second phase of the EU ETS and sets out the Carbon Trust's own conclusions and recommendations for the future of the EU ETS as an instrument that can both help business deliver emission reductions as efficiently as possible, and also protect and ultimately enhance business competitiveness in a CO 2 -constrained world.
It presents our analysis of combined insights from economic modelling and a stakeholder interview programme. The scheme is the world's largest carbon-trading scheme. It provides an incentive for installations to reduce their carbon emissions, because they can then sell their surplus allowances.
Installations are included in the scheme on the basis of their Carbon Dioxide CO2 emitting activities. Industries that are covered include:. Tools and resources Tools View all tools.
Contact us Live Chat. Please tick to subscribe to our newsletter sent monthly. See further details below on: During this phase, every EU member state: Operated the Scheme Installations were obliged to monitor and report verified carbon emissions At the end of each year, installations were obliged to surrender sufficient allowances to cover their emissions and could buy additional allowances or sell any surplus Joint Implementation JI and Clean Development Mechanism CDM credits could be used within the scheme, through the 'Linking Directive', agreed in How the EU ETS works now Phase III started in and run until The biggest changes in Phase III are: Newbery wrote that "[there] is no case for repeating such a wilful misuse of the value of a common property resource that should be owned by the country".
The price of emissions permits tripled in the first six months of Phase I, collapsed by half in a one-week period in , and declined to zero over the next twelve months. Such movements and the implied volatility raise questions about the viability of this trading system to provide stable incentives to emitters.
This criticism has face validity. In future phases, measures such as banking of allowances and price floors may be used to mitigate volatility. Nonetheless, producers and consumers in those markets respond rationally and effectively to price signals.
Newbery commented that the EU ETS was not delivering the stable carbon price necessary for long-term, low-carbon investment decisions. The main theoretical advantage of allowing free trading of credits is that it allows mitigation to be done at least-cost CCC, , p.
In terms of the UK's climate change policy, CCC , noted three arguments against too great a reliance on credits:.
The ban includes nitrous oxide N2O from adipic acid production. The reasons given were the perverse incentives, the lack of additionality, the lack of environmental integrity,the under-mining of the Montreal Protocol, costs and ineffectiveness and the distorting effect of a few projects in advanced developing countries getting too many CERs. This is a way to avoid several problems of CDM and JI such as additionality, measurement, leakage, permanence, and verification.
Furthermore, it reduces the available allowances in the cap-and-trade system, which means that it reduces the emissions that can be produced by covered sources. The EU is negotiating a link with Switzerland's domestic trading system.
Linking  systems creates a larger carbon market, which can reduce overall compliance costs, increase market liquidity and generate a more stable carbon market. Some scholars have argued that linking may provide a starting point for developing a new, bottom-up international climate policy architecture whereby multiple unique systems successively link their various systems. From Wikipedia, the free encyclopedia. This section's tone or style may not reflect the encyclopedic tone used on Wikipedia.
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Researchers Preston Teeter and Jorgen Sandberg have argued that it is largely the uncertainty behind the EU's scheme that has resulted in such a tepid and informal response by regulated organizations.
The EU ETS has seen a number of significant changes, with the first trading period described as a 'learning by doing' phase.