Assessing the effectiveness of the EU Emissions Trading System


Working Paper 106

Abstract

As an increasing number of countries, regions, cities and states implement emission trading policies to limit cap CO2 emission, many turn to the experience of the European Union’s Emissions Trading System, as the largest greenhouse gas emissions trading system currently operating.

The aim of this paper is to survey the literature conducted over the past eight years of the scheme’s existence, particularly those focusing on three key challenging areas of evaluation:

  1. emissions impacts in relation to the balance with economic objectives;
  2. investment and innovation impacts;
  3. and, finally, profits and price impacts.

Among the key conclusions is that the lack of flexibility in the structure of the EU ETS cap, and its inability to adjust to radically shifted wider economic conditions, in the shape of the financial crisis, threatens to undermine its efficacy in providing incentives for abatement.

Tim Laing, Misato Sato, Michael Grubb and Claudia Comberti