You are here: Home Knowledge Base The EU’s Emission Trading System: More Than Hot Air? Virtual Library The European Union Emissions Trading Scheme: should we throw the flagship out with the bathwater?
Symposium 2015

Virtual Library File - The European Union Emissions Trading Scheme: should we throw the flagship out with the bathwater?

The Challenge

The EU's emissions trading system (EU-ETS) is the largest existing emissions trading scheme. This scheme is the main economic climate policy instrument of the EU, and it also serves as a blueprint for ...

The EU's emissions trading system (EU-ETS) is the largest existing emissions trading scheme. This scheme is the main economic climate policy instrument of the EU, and it also serves as a blueprint for other emissions trading schemes world-wide.

In 2014, the EU agreed on new and ambitious emissions reduction targets for 2030. While the EU-ETS is considered a key instrument in reaching these new targets, its effectiveness has been impeded by low carbon prices that fall short of providing the necessary incentives for urgently needed technological changes. So far, attempts to change this incentive structure have failed. The Reform proposed by the European Commission, the so-called Market Stability Reserve, will probably not go far enough for various reasons.

These experienced economic researchers argue that current reform proposals are not sufficient and that  “a robust strategy to save the European climate policy should combine an attempt to reform of the ETS through the introduction of a price floor (and possibly a price ceiling), and the development of complementary policies, even in the electricity sector whose emissions are covered by the ETS, both because the ETS reform may fail and because the ETS cannot address all the relevant market failures”.