The EU ETS: The Big Baby in the Bath Water

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“A cap & trade system remains the most suitable tool to address emissions reductions worldwide in comparison with carbon taxation,” writes Maïté Jaureguy-Naudin, a researcher at the French Institute of International Relations (IFRI), in a March paper.

“The worldwide economic slowdown will reduce global CO2 emissions from man’s economic activity – but only temporarily,” states Jaureguy-Naudin.

“CO2 emissions from [the EU’s emissions trading scheme] installations fell by 3% in 2008 compared to 2007,” writes the researcher, adding that “carbon prices could be responsible for 40% of the fall”.

Thus a cap-and-trade system is “the most suitable tool to address emissions reductions worldwide in comparison with carbon taxation,” according to Jaureguy-Naudin.

The researcher rules out carbon taxes because “it is difficult if not impossible to define how large a tax, how much reduction and in which markers”.

Furthermore, such a tax is “difficult to sell politically,” and finally, “China, India and growing Middle Eastern consumers are unlikely to adopt a carbon tax, whereas it might be easier to draw them in a global cap-and-trade system where they could have a comparative advantage,” she explains.

“The EU ETS has been tried for several years now” and has been improved over the various phases (2005-2007; 2008-2012), says Jaureguy-Naudin, pointing to the fact that it has been “adopted by 27 countries, despite strong differences in energy mixes and climate policies”.

“Opponents of a cap-and-trade system point to the problems of the EU ETS to support their argument. Instead, others should draw from the lessons of the EU ETS to develop a better institutional framework and mechanisms,” she adds.

“Despite EU ETS’ faults, the EU succeeded in setting a constraint and a price on CO2 emissions coming from major economic players, and now has an increasingly robust system that could deliver the needed reduction if corrected accordingly,” Jaureguy-Naudin insists. 

“For now, the ETS is the biggest baby in this bath water – let’s be sure to put all that work to good use,” she concludes. 

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