The EU Emission Trading Scheme

A multi-blog analysis of Europe’s carbon market

The European Union Emission Trading Scheme (ETS) is a multinational carbon market. Policymakers designed the ETS to economically incentivize reductions in greenhouse gas emissions among over 11,000 of the continent’s biggest climate polluters. The world’s largest illustration of the most popular policy solution to global climate change warrants thorough scrutiny.

The European Union  designed the Emission Trading Scheme to slow the flow of greenhouse gases from smokestacks. I have three main questions about this cap-and-trade system: (1) is it working?; (2) should the US adopt similar climate policy?; and (3) can emissions trading scale up to be a global climate solution? Photograph: Ilya Naymushin/REUTERS

The European Union created the Emission Trading Scheme to slow the flow of greenhouse gases from smokestacks. I have three main questions about this cap-and-trade system: (1) is it working?; (2) should the US adopt similar climate policy?; and (3) can emissions trading scale up to be a global climate solution? Photograph: Ilya Naymushin/REUTERS

Someday, the moment will arrive at last when legislation to protect the climate is politically feasible in Washington, DC. Before we rush to the conclusion that creating complex cap-and-trade systems will successfully reduce emissions in the most cost-effective way possible, as prevailing economic theory promises, we should evaluate every aspect of the European system in place, from efficacy to unintended consequences. This series of blog posts dissects the subtle nuances and states the obvious upshots of the European Union Emission Trading Scheme.

An American Perspective

The EU’s carbon-trading system serves as an exemplary model of the sort of policy climate activists in the United States should demand Congress pass into law, right? Not so fast. The ETS can hardly be considered the prototype for a functioning market-based climate change solution.

Band-Aid for a Broken Market

The EU recently passed a spongy amendment to soak up some surplus carbon permits in their flooded cap-and-trade scheme. The emission trading system needs saving, but the ‘backloading’ rescue plan only delays emissions until later in the decade.  Major structural reform will be necessary to salvage the ETS’ status as the centerpiece of Europe’s climate policy.

The Price Ain’t Right

Emission allowances in Europe are too cheap to prompt greenhouse gas reductions, but don’t ask the US government what the price of climate pollution should be, lest they mention the Social Cost of Carbon. The Obama Administration’s calculated cost of climate change is five times the price of a metric ton of carbon dioxide in the ETS market, yet it’s still too low.

Radical Proposal to Meet Ambitious Goals

To reach targets set by the new 2030 framework on climate and energy, EU climate policy must strengthen and transform. This will take time, though, because progress moves slowly in the bureaucratic, multinational government body. In the meantime, I propose eliminating energy subsidies and instead using those funds to tighten the carbon market and reduce emissions cost-effectively

Critiques, comments, opinions, debate are welcome and encouraged.

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