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EU Emissions Trading System (EU ETS)

EU Emissions Trading System (EU ETS) is one of the largest (possibly largest) carbon markets. It is a 31-member trans-national regulatory market established by a directive in 20031.

Size of the market increases competition and expands access to buyers. Issues with the system include1:

  1. price volatility - allowance changes introduced price volatility in the early years of the project.
  2. Governance problems - individual member states (MS) created a variety of rules and implementation schemes for allowances were distributed.
  3. Monitoring problems - frauds occurred in early phases of the project. These frauds spurred more of the trade in caps than the underlying need for emissions reduction.

These issues led to centralization of standard setting and regulating the registry.

Borghesi concluded that ETS had a weak impact on eco-innovation due to price volatility and relatively low price for emissions1.


References

1.
Borghesi, S. & Montini, M. The Best (and Worst) of GHG Emission Trading Systems: Comparing the EU ETS with Its Followers. Frontiers in energy research 4, (2016).

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