Directive 2003/87/EC established a scheme for greenhouse gas (GHG) emission allowance trading within the Community which is in compliance with the overall commitment entered into by the European Community and its Member States under the Kyoto Protocol. It aims at reducing total emissions of GHG by at least 5% of the level of emissions in 1990, during the period 2008-12. The EU Emissions Trading Scheme (EU ETS) is based on the recognition that creating a price for carbon emissions is the most cost-effective way to achieve the deep reductions in global GHG emissions that are needed to prevent climate change from reaching dangerous levels. The first section of the present essay outlines the problem of climate change and how the international legal framework addresses it. In the second section, the cap-and-trade system is discussed as a flexible mechanism for climate protection. The next section identifies three theoretic models of the ETS: Economic Efficiency, Private Property Rights and Command-and-Control models. The fifth section outlines the EU ETS and discusses its main components. Finally, in the last section a critical analysis of the EU ETS is presented in terms of three main criticisms: target achievement, perverse incentives and economization of an ecological problem.
Table of Contents
1. Introduction
2. The international legal framework to combat climate change
3. The Cap-and-trade system
4. The Theoretic Rationale behind ETS
5. The design of EU ETS
5.1. Background of EU ETS
5.2. Phases of the EU ETS
5.3. National Allocation Plans
6. Effectiveness of EU ETS
6.1. Target achievement
6.2. Perverse incentives
6.3. Economisation of ecological problem
7. Conclusion
Research Objectives and Core Themes
This paper examines the viability of the EU Emissions Trading Scheme (EU ETS) as a regulatory mechanism for reducing greenhouse gas emissions. It evaluates the system's theoretical foundations, its practical implementation within the European Union, and provides a critical analysis of its effectiveness in addressing climate change through the lenses of target achievement, economic incentives, and environmental policy.
- The international legal context of climate change mitigation under the Kyoto Protocol.
- Theoretical models of emissions trading: Economic Efficiency, Private Property Rights, and Command-and-Control.
- Structural design and operational phases of the EU ETS.
- Critical evaluation of regulatory challenges including perverse incentives and the economization of ecological issues.
Excerpt from the Book
3. The Cap-and-trade system
Cap-and-trade is the core of the flexible mechanisms for climate protection where the maximum use of a resource is determined. ETS is predominantly suited to the emissions of GHG, the gases responsible for global warming, which have the same effect wherever they are emitted. A cap-and-trade system is defined as: 'a system which constrains the aggregate emissions of regulated sources by creating a limited number of tradable emission allowances, which emission sources must secure and surrender in number equal to their emissions'.
The rationale behind emissions trading is to ensure that the emission reductions, required to achieve a pre-determined environmental outcome take place where the cost of the reduction is the lowest. The cap is an enforceable limit on emissions that is usually lowered over time. Nationally, an overall cap of allowances covering all participating installations is set and divided between installation allowances, where each allowance representing a tonne of the relevant emission. At the end of the compliance period, participants must hold sufficient allowances to cover all of their emissions.
Installations with comparatively high abatement costs (the cost of reducing emissions) can be expected to have higher emissions and attain fulfillment by buying allowances from other participants. Installations with relatively low abatement costs will undertake more abatement activity and can be expected to benefit from the sale of any surplus allowances. In contrast to regulation which imposes strict emissions limits on particular installations, emissions trading gives companies the flexibility to meet emission reduction targets according to their own strategy; for example by reducing emissions on site or by buying allowances from the market.
Summary of Chapters
1. Introduction: Outlines the problem of climate change and introduces the EU ETS as a cost-effective regulatory tool based on the Kyoto Protocol commitments.
2. The international legal framework to combat climate change: Discusses the global context of climate protection, including the role of the United Nations Framework Convention and the Kyoto Protocol's flexible mechanisms.
3. The Cap-and-trade system: Defines the mechanics of cap-and-trade, focusing on how setting an enforceable limit and allowing allowance trading achieves cost-effective emission reductions.
4. The Theoretic Rationale behind ETS: Explores the economic foundations of emissions trading, distinguishing between Economic Efficiency, Private Property Rights, and Command-and-Control models.
5. The design of EU ETS: Provides an overview of the EU scheme, including its historical background, implementation phases, and the role of National Allocation Plans.
6. Effectiveness of EU ETS: Critically analyzes the system's success, highlighting issues such as insufficient target levels, perverse incentives created by grandfathering, and the economization of ecological problems.
7. Conclusion: Summarizes the EU ETS as a pioneering market-based instrument while acknowledging that its design and target setting remain subject to significant academic and practical criticism.
Keywords
Emissions Trading Scheme, EU ETS, Greenhouse Gases, Climate Change, Kyoto Protocol, Cap-and-Trade, Economic Efficiency, Private Property Rights, Command-and-Control, Carbon Emissions, National Allocation Plans, Environmental Law, Sustainability, Abatement Costs, Global Warming.
Frequently Asked Questions
What is the primary focus of this work?
This work evaluates whether the EU Emissions Trading Scheme (EU ETS) is a viable and effective mechanism for reducing greenhouse gas emissions to combat climate change.
What are the central thematic areas?
The central themes include the international legal framework, the economic theory behind cap-and-trade systems, the structural design of the EU ETS, and critical assessment of its environmental effectiveness.
What is the primary research goal?
The goal is to assess the viability of emissions trading by examining how effectively the EU ETS balances economic flexibility with the urgent need for real emission reductions.
Which scientific methods are employed?
The paper utilizes a qualitative, interdisciplinary legal and economic analysis, reviewing existing scholarly literature, directives, and policy reports to deconstruct the regulatory framework of the EU ETS.
What topics are covered in the main section?
The main sections cover the evolution of climate law, the theoretical foundations (Efficiency, Property Rights, Command-and-Control), the historical phases of the EU ETS, and a critical analysis of current shortcomings.
How would you characterize this work with keywords?
The work is best characterized by terms such as EU ETS, Greenhouse Gas Reduction, Cap-and-Trade, Environmental Policy, and Economic Efficiency.
What is 'grandfathering' in the context of the EU ETS?
Grandfathering refers to the allocation approach where polluters receive emission permits free of charge based on their historical emissions, which is criticized for creating perverse incentives.
How does the author view the 'economization' of ecological problems?
The author identifies it as an obstacle, arguing that translating ecological issues into economic commodities may lead to losing sight of the underlying environmental purpose.
What is the role of the 'cap' in the EU ETS?
The cap represents an absolute quantity limit on CO2 emissions that is set by authorities and lowered over time to ensure that total environmental outcomes remain within predetermined boundaries.
- Quote paper
- Veronika Minkova (Author), 2011, Do you consider that emissions trading provides a viable means of achieving reductions in greenhouse gases?, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/179304
