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European Carbon Emissions Trading Scheme


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European Carbon Emissions Trading Scheme

  1. 1. European Carbon Emissions Trading Scheme Vickie-Space/Pedia Karoliina Lehtonen
  2. 2. What is the EU ETS? <ul><li>Largest multi-national greenhouse gas emissions trading scheme in the world </li></ul><ul><li>Created in conjunction with the Kyoto Protocol </li></ul><ul><ul><li>1997 international treaty that came into force in 2005 </li></ul></ul>
  3. 3. What’s the problem? <ul><ul><ul><li>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. </li></ul></ul></ul>QUANTITY PRICE
  4. 4. Why do we need the EU ETS? <ul><li>Trading is economically efficient in reducing carbon emissions </li></ul><ul><li>More flexible than taxes or direct regulation </li></ul><ul><li>Will bring cleaner technologies to market </li></ul><ul><li>Provides business opportunities </li></ul>
  5. 5. Proposed Remedy <ul><ul><ul><li>EU Commission introduced the European Union Emissions Trading Scheme (EU ETS) </li></ul></ul></ul><ul><ul><ul><li>Reduce gas emissions 8% below 1990 levels under the Kyoto Protocol </li></ul></ul></ul><ul><ul><ul><li>Conjunction with Kyoto Protocol </li></ul></ul></ul><ul><ul><ul><li>Fifteen member states of the EU commenced operation on January 1st 2005 </li></ul></ul></ul><ul><ul><ul><li>Develop a cap and trade system </li></ul></ul></ul>
  6. 6. How does the EU ETS work? <ul><ul><ul><li>Divided into phases (phase 1 and phase 2) </li></ul></ul></ul><ul><ul><ul><ul><li>Phase 1 (2005-2007) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Phase 2 (2008-2012) </li></ul></ul></ul></ul><ul><ul><ul><li>Each member state develop a NAP </li></ul></ul></ul><ul><ul><ul><li>Overall ‘cap’ on total amount of emissions </li></ul></ul></ul><ul><ul><ul><li>1 allowance = 1 tonne of CO 2 </li></ul></ul></ul><ul><ul><ul><li>Allowances distributed to installations; installations are monitored </li></ul></ul></ul><ul><ul><ul><li>Surrender allowances at the end of each year </li></ul></ul></ul><ul><ul><ul><li>Trading allowances </li></ul></ul></ul>
  7. 8. Does it internalize the externality? <ul><ul><ul><li>Effectiveness = tightness of caps </li></ul></ul></ul><ul><ul><ul><li>Phase 1: NO </li></ul></ul></ul><ul><ul><ul><ul><li>Over allocated allowances </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Little incentive to reduce CO 2 emissions </li></ul></ul></ul></ul><ul><ul><ul><li>Phase 2: Possibly </li></ul></ul></ul><ul><ul><ul><ul><li>Stricter caps </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Includes aviation CO2 emissions </li></ul></ul></ul></ul>
  8. 9. Negative Externality Model
  9. 10. Bibliography <ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul>