Critical Issues in Environmental Taxation series
Edited by Natalie P. Stoianoff, Larry Kreiser, Bill Butcher, Janet E. Milne and Hope Ashiabor
Chapter 12: Sectoral allocation patterns in the EU Emission Trading Scheme: Empirical evidence and outlook
The EU Emission Trading Scheme (EU ETS) is the most important climate policy instrument in the European Union. Implemented in 2005, the EU ETS was the first international trading system for greenhouse gas emissions and it is still the largest carbon market worldwide: currently the scheme covers more than 11,000 power stations and industrial plants in 31 countries responsible for more than 50% of the EU’s CO2 emissions. In the first two trading phases, the performance of the EU ETS was, however, characterised by pronounced surplus allocation that translated into low carbon prices. Therefore, for the third trading phase—which covers the period from 2013 to 2020—and beyond, a number of changes to the EU ETS were adopted in the EU’s 2008 Climate and Energy Package that should help improve the credibility of the scheme, incentivising low carbon investment. One major modification referred to the change in allocation procedures, giving more weight to the auctioning of allowances as compared with previous trading phases.
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