European Carbon Emissions Trading Scheme Vickie-Space/Pedia Karoliina Lehtonen

What is the EU ETS? Largest multi-national greenhouse gas emissions trading scheme in the world Created in conjunction with the Kyoto Protocol 1997 international treaty that came into force in 2005

Largest multi-national greenhouse gas emissions trading scheme in the world

Created in conjunction with the Kyoto Protocol

1997 international treaty that came into force in 2005

What’s the problem? Goods and services that are produced that result in carbon emissions are provided in the market at too low a price and too high a quantity. QUANTITY PRICE

Goods and services that are produced that result in carbon emissions are provided in the market at too low a price and too high a quantity.

Why do we need the EU ETS? Trading is economically efficient in reducing carbon emissions More flexible than taxes or direct regulation Will bring cleaner technologies to market Provides business opportunities

Trading is economically efficient in reducing carbon emissions

More flexible than taxes or direct regulation

Will bring cleaner technologies to market

Provides business opportunities

Proposed Remedy EU Commission introduced the European Union Emissions Trading Scheme (EU ETS) Reduce gas emissions 8% below 1990 levels under the Kyoto Protocol Conjunction with Kyoto Protocol Fifteen member states of the EU commenced operation on January 1st 2005 Develop a cap and trade system

EU Commission introduced the European Union Emissions Trading Scheme (EU ETS)

Reduce gas emissions 8% below 1990 levels under the Kyoto Protocol

Conjunction with Kyoto Protocol

Fifteen member states of the EU commenced operation on January 1st 2005

Develop a cap and trade system

How does the EU ETS work? Divided into phases (phase 1 and phase 2) Phase 1 (2005-2007) Phase 2 (2008-2012) Each member state develop a NAP Overall ‘cap’ on total amount of emissions 1 allowance = 1 tonne of CO 2 Allowances distributed to installations; installations are monitored Surrender allowances at the end of each year Trading allowances

Divided into phases (phase 1 and phase 2)

Phase 1 (2005-2007)

Phase 2 (2008-2012)

Each member state develop a NAP

Overall ‘cap’ on total amount of emissions

1 allowance = 1 tonne of CO 2

Allowances distributed to installations; installations are monitored

Surrender allowances at the end of each year

Trading allowances

Does it internalize the externality? Effectiveness = tightness of caps Phase 1: NO Over allocated allowances Little incentive to reduce CO 2 emissions Phase 2: Possibly Stricter caps Includes aviation CO2 emissions

Effectiveness = tightness of caps

Phase 1: NO

Over allocated allowances

Little incentive to reduce CO 2 emissions

Phase 2: Possibly

Stricter caps

Includes aviation CO2 emissions

Negative Externality Model

Bibliography http://www.climatechange.com.au/2008/04/08/emissions-trading-the-pros-and-cons/ http://www.defra.gov.uk/environment/climatechange/trading/eu/how.htm http://www.defra.gov.uk/environment/climatechange/trading/eu/why.htm www.economicshelp.org www.carbonemissionstradingscheme.com http://www.defra.gov.uk/environment/climatechange/trading/eu/why.htm www.deviantart.com

http://www.climatechange.com.au/2008/04/08/emissions-trading-the-pros-and-cons/

http://www.defra.gov.uk/environment/climatechange/trading/eu/how.htm

http://www.defra.gov.uk/environment/climatechange/trading/eu/why.htm

www.economicshelp.org

www.carbonemissionstradingscheme.com

http://www.defra.gov.uk/environment/climatechange/trading/eu/why.htm

www.deviantart.com