Analysis: The EU Emissions Trading Scheme – Taking Stock and Looking Ahead

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Experts from the ‘European Climate Platform’ (ECP – a joint initiative by CLIPORE and CEPS) identify the key strategic and operational issues for the review of the EU Emissions Trading Scheme (ETS) later this year.

Although the EU ETS has been running for more than a year by now, the scheme still is “under construction,” authors of the report argue. Among other remaining challenges, they say member states’ implementation should be improved, transparency and consistency increased – notably for allocation of emitting rights – and allocation methodologies streamlined (not to say ‘harmonised’) if the EU ETS is to fulfil its primary function, namely to “reduce greenhouse gas emissions in a cost-effective way.”

Since another goal of the EU ETS is to help develop and disseminate low-carbon technologies, experts also call for more investment incentives. They suggest recasting this particular debate on how to harmonise the new entrants and closure rules first, and on allocation methodologies in the second place. On that latter aspect, the upcoming review of the EU ETS could be the occasion of defining a set of criteria (e.g. environmental objectives, competitiveness effects and distributional effects, etc.) against which member states’ allocation could be assessed.

The authors also argue that the EU ETS on its own will not suffice to encourage the development of new technologies. Therefore, they reckon additional measures should be taken at EU level, such as R&D subsidies.

The report also urges for more attention to be paid to the “optimal mix of policies between the trading and non-trading sectors” covered in the EU ETS, to avoid unintended consequences.

To conclude, the authors remain cautious on the potential for linking the EU ETS to other potential similar systems worldwide, in order to promote a global carbon market. Although they identify three possible options for so doing, they fear such a global system could prove too complex, with dissimilar (price) effects from one participant country to the other.

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