EUROPEAN CARBON EMISSIONS TRADING SCHEME By: RAJ (Roy, Andrew, John)

By: RAJ (Roy, Andrew, John)

Background Information Largest Emission Trading Scheme in the world Two phases Commenced operation in January 2005 Covers more than 10000 installations

Largest Emission Trading Scheme in the world

Two phases

Commenced operation in January 2005

Covers more than 10000 installations

Market Failure A situation where the allocation of production or consumption of goods and services by the free market is not efficient Carbon Emissions

A situation where the allocation of production or consumption of goods and services by the free market is not efficient

Carbon Emissions

Externalities Negative externalities Greenhouse gas; major contributor to the global warming Decreases air quality, leads to increase in population with asthma Increases worldwide death rate

Negative externalities

Greenhouse gas; major contributor to the global warming

Decreases air quality, leads to increase in population with asthma

Increases worldwide death rate

Remedy – Phase One January 2005 Cap-and-trade system Firms are given “allowances” Allowances can be bought and sold

January 2005

Cap-and-trade system

Firms are given “allowances”

Allowances can be bought and sold

Efficiency – Phase One No Cap/limit on carbon emissions too high “ Allowances” too cheap From 1.2 Euros to 0.1 Euros per ton of CO 2 Less incentive Emissions actually increased by 1.9% between 2005-2007 Over 6 billion tons CO 2 emitted

No

Cap/limit on carbon emissions too high

“ Allowances” too cheap

From 1.2 Euros to 0.1 Euros per ton of CO 2

Less incentive

Emissions actually increased by 1.9% between 2005-2007

Over 6 billion tons CO 2 emitted

Remedy – Phase Two January 2008 Decreased total amount of emissions allowed Price of allowances increased

January 2008

Decreased total amount of emissions allowed

Price of allowances increased

Efficiency – Phase Two YES! More incentive to emit less High goals/expectations By 2012, include all greenhouse gases from all sectors

YES!

More incentive to emit less

High goals/expectations

By 2012, include all greenhouse gases from all sectors

Sources: &quot;Carbon emissions trading in Europe: Lessons to be learned.&quot; MITEI | Carbon emissions trading in Europe . MITEI. 8 Mar 2009 <http://web.mit.edu/mitei/research/spotlights/europe-carbon.html>. &quot;Environment -Climate Change - Emission Trading Scheme.&quot; Emission Trading Scheme . 28 Nov 2008. EUROPA. 8 Mar 2009 <http://ec.europa.eu/environment/climat/emission/index_en.htm>. &quot;European Union Emission Trading Scheme.&quot; European Union Emission Trading Scheme - Wikipedia, the free encyclopedia . 08 Mar 2009. Wikipedia. 9 Mar 2009 <http://en.wikipedia.org/wiki/European_Union_Emission_Trading_Scheme>. &quot;Q&A: Europe's carbon trading scheme.&quot; BBC NEWS | Science & Environment . 20 Dec 2006. BBC. 8 Mar 2009 <http://news.bbc.co.uk/go/pr/fr/-/2/hi/science/nature/4114921.stm>.

&quot;Carbon emissions trading in Europe: Lessons to be learned.&quot; MITEI | Carbon emissions trading in Europe . MITEI. 8 Mar 2009 <http://web.mit.edu/mitei/research/spotlights/europe-carbon.html>.

&quot;Environment -Climate Change - Emission Trading Scheme.&quot; Emission Trading Scheme . 28 Nov 2008. EUROPA. 8 Mar 2009 <http://ec.europa.eu/environment/climat/emission/index_en.htm>.

&quot;European Union Emission Trading Scheme.&quot; European Union Emission Trading Scheme - Wikipedia, the free encyclopedia . 08 Mar 2009. Wikipedia. 9 Mar 2009 <http://en.wikipedia.org/wiki/European_Union_Emission_Trading_Scheme>.

&quot;Q&A: Europe's carbon trading scheme.&quot; BBC NEWS | Science & Environment . 20 Dec 2006. BBC. 8 Mar 2009 <http://news.bbc.co.uk/go/pr/fr/-/2/hi/science/nature/4114921.stm>.