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EU emissions trading: navigating between Scylla and Charybdis

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  • Axel Michaelowa
  • Sonja Butzengeiger

Abstract

With the introduction of the EU emissions trading system on 1 January 2005, the EU became the world leader in the implementation of a market mechanism in environmental policy. Through the project-based Kyoto mechanisms, the EU trading scheme is linked to the world greenhouse gas market; however, the robustness of that link remains to be tested. Due to effective lobbying of large emitters, allocation is cost-free-either based on historical emissions (traditional 'grandfathering') or against projected emissions (which one might call 'baseline-and-cap trading')-and in most Member States the trading sectors have received a generous allocation. This may lead to a market with low liquidity and low prices. Nevertheless, the EU Commission has managed to reduce some of the more blatant cases of over-allocation. While the ongoing legal cases may lead to a temporary weakening of demand for allowances, a decision to expand the trading scheme to other sectors and gases, a larger role of auctioning as well as a more stringent post-2008 allocation plans process scheduled for 2006 may correct many of the first period's misconstructions.

Suggested Citation

  • Axel Michaelowa & Sonja Butzengeiger, 2005. "EU emissions trading: navigating between Scylla and Charybdis," Climate Policy, Taylor & Francis Journals, vol. 5(1), pages 1-9, January.
    • Handle: RePEc:taf:tcpoxx:v:5:y:2005:i:1:p:1-9
    DOI: 10.1080/14693062.2005.9685536
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    References listed on IDEAS

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    1. Kruger, Joseph & Pizer, William A., 2004. "The EU Emissions Trading Directive: Opportunities and Potential Pitfalls," Discussion Papers 10679, Resources for the Future.
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    5. Gernot Klepper & Sonja Peterson, 2004. "The EU Emissions Trading Scheme. Allowance Prices, Trade Flows, Competitiveness Effects," Working Papers 2004.49, Fondazione Eni Enrico Mattei.
    6. Bode, Sven, 2004. "Multi-Period Emissions Trading in the Electricity Sector: Winners and Losers," HWWA Discussion Papers 268, Hamburg Institute of International Economics (HWWA).
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    Cited by:

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    2. bleischwitz, raimund & fuhrmann, katrin & huchler, elias, 2007. "The Sustainability Impact of the EU Emissions Trading System on the European Industry," MPRA Paper 14519, University Library of Munich, Germany, revised Sep 2007.

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