European Emissions Trading in Practice
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European Emissions Trading in Practice

An Economic Analysis

Stefano Clò

This unique and up-to-date book analyses the functioning of the European Emissions Trading Scheme (ETS) and assesses the extent to which relevant legislation has affected its capacity to promote cost-effective reduction of European carbon emissions.
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Chapter 2: Climate Change and the Kyoto Protocol: An Overview

Stefano Clò


INTRODUCTION Before focusing on the ETS and assessing its effectiveness in facilitating compliance with the European emissions reduction targets, it can be useful to contextualize this economic mechanism within the broader scientific, economic and political debate about both climate change and the Kyoto Protocol. Given that the Kyoto Protocol de facto does not impose any emissions reduction commitment on the US and on developing countries (Carraro et al. 2009), it is crucial to underline from the very beginning the unilateral nature of the European climate policy, which is aimed at achieving a stringent emissions reduction target in an asymmetric geopolitical scenario. In fact, as Chapter 7 will discuss, the effectiveness of the ETS itself risks being jeopardized by the unilateral and asymmetric nature of the European climate policy. Chapter 2 is structured as follows. First, we clarify what is meant by the term global warming (second section), what its causes and main anthropogenic sources are (third section) and the possible natural consequences linked to different climate scenarios (fourth section). After addressing these issues, the chapter focuses on both the economics of climate change and the economic debate concerning the costs and benefits of global warming as opposed to the costs and benefits of its mitigation. Different economic models to assess the optimal level of emissions reduction and to determine more appropriate mitigation policies have been proposed. The fifth section briefly reviews this literature, highlighting the different assumptions, methodologies and contrasting results, without pretending to assess which are the most reliable....

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