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The EU's Emissions Trading Scheme: A Proto-Type Global System?

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  • Denny Ellerman

Abstract

The European Union's Emission Trading Scheme (EU ETS) is the world's first multinational cap-and-trade system for greenhouse gases. As an agreement between sovereign nations with diverse historical, institutional, and economic circumstances, it can be seen as a prototype for an eventual global climate regime. Interestingly, the problems that are often seen as dooming a global trading system - international financial flows and institutional readiness - haven't appeared in the EU ETS, at least not yet. The more serious problems that emerge from the brief experience of the EU ETS are those of (1) developing a central coordinating organization, (2) devising side benefits to encourage participation, and (3) dealing with the interrelated issues of harmonization, differentiation, and stringency. The pre-existing organizational structure and membership benefits of the European Union provided convenient and almost accidental solutions to the need for a central institution and side benefits, but these solutions will not work on a global scale and there are no obvious substitutes. Furthermore, the EU ETS is only beginning to test the practicality of harmonizing allocations within the trading system, differentiating responsibilities among participants, and increasing the stringency of emissions caps. The trial period of the EU ETS punted on these problems, as was appropriate for a trial period, but they are now being addressed seriously. From a global perspective, the answers that are being worked out in Europe will say a great deal about what will be feasible on a broader, global scale.

Suggested Citation

  • Denny Ellerman, 2009. "The EU's Emissions Trading Scheme: A Proto-Type Global System?," RSCAS Working Papers 2009/02, European University Institute.
  • Handle: RePEc:rsc:rsceui:2009/02
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    File URL: http://hdl.handle.net/1814/10619
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    Cited by:

    1. Zhang, Yue-Jun & Wei, Yi-Ming, 2010. "An overview of current research on EU ETS: Evidence from its operating mechanism and economic effect," Applied Energy, Elsevier, pages 1804-1814.
    2. Zhang, Yue-Jun & Wei, Yi-Ming, 2010. "An overview of current research on EU ETS: Evidence from its operating mechanism and economic effect," Applied Energy, Elsevier, pages 1804-1814.
    3. Inglesi-Lotz, Roula & Blignaut, James N., 2014. "Improving the electricity efficiency in South Africa through a benchmark-and-trade system," Renewable and Sustainable Energy Reviews, Elsevier, vol. 30(C), pages 833-840.

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    Keywords

    European Union; emissions trading; climate change policy; global climate architecture; cap-and-trade;

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