EUROPEAN CARBON EMISSIONS TRADING SCHEME

•By: RAJ (Roy, Andrew, John)

Background Information

Largest Emission Trading Scheme in the world Two phases

Commenced operation in January 2005

Covers more than 10000 installations

Market Failure

A situation where the allocation of production or consumption of goods and services by the free market is not efficient Carbon Emissions

Externalities

Negative externalities Greenhouse gas; major

contributor to the global warming

Decreases air quality, leads to increase in population with asthma

Increases worldwide death rate

Remedy – Phase One

January 2005 Cap-and-trade system

Firms are given “allowances” Allowances can be bought and sold

Efficiency – Phase One

No Cap/limit on carbon emissions too high “Allowances” too cheap

From 1.2 Euros to 0.1 Euros per ton of CO2

Less incentive

Emissions actually increased by 1.9% between 2005-2007 Over 6 billion tons CO2 emitted

Remedy – Phase Two

January 2008 Decreased total amount of emissions allowed Price of allowances increased

Efficiency – Phase Two

YES! More incentive to emit less High goals/expectations

By 2012, include all greenhouse gases from all sectors

Sources:

"Carbon emissions trading in Europe: Lessons to be learned." MITEI | Carbon emissions trading in Europe. MITEI. 8 Mar 2009 <http://web.mit.edu/mitei/research/spotlights/europe-carbon.html>.

"Environment -Climate Change - Emission Trading Scheme." Emission Trading Scheme. 28 Nov 2008. EUROPA. 8 Mar 2009 <http://ec.europa.eu/environment/climat/emission/index_en.htm>.

"European Union Emission Trading Scheme." European Union Emission Trading Scheme - Wikipedia, the free encyclopedia. 08 Mar 2009. Wikipedia. 9 Mar 2009 <http://en.wikipedia.org/wiki/European_Union_Emission_Trading_Scheme>.

"Q&A: Europe's carbon trading scheme." BBC NEWS | Science & Environment. 20 Dec 2006. BBC. 8 Mar 2009 <http://news.bbc.co.uk/go/pr/fr/-/2/hi/science/nature/4114921.stm>.