An Economic Analysis
Chapter 4: Legal and Economic Aspects of the European Emissions Trading Scheme
1. INTRODUCTION Taking the European emissions reduction target as given, and without questioning the European decision of opting for a cap and trade scheme among different possible regulatory options, we start by observing how the ETS has been performing during these years and, in the case that fallacies are identified, we will try to offer some normative prescriptions to improve the ETS effectiveness by reforming its institutional framework according to economic principles. Chapter 4 introduces the economic and legal background of the ETS. Starting with a brief reminder of the important experience of the American SO2 emissions trading programme, section 2 of this chapter describes the origin of the EU ETS within the legal framework of the Kyoto Protocol and the role it covers within the European climate policy. The ETS is based upon the institution of emissions allowances, artificially created by the public authority and assigned to the regulated agents that are free to trade them within the ETS. Therefore, the legal nature of the allowances within the field of property law is briefly discussed. Section 3 contextualizes the ETS in a temporal and special framework. The length of the ETS regulation and its subdivision in different trading periods are specified together with its scope: the amount of emissions and sources that fall within the ETS. This specification is important to underline that the ETS regulates only a subset of the GHG and emissions sources covered by the Kyoto Protocol. This difference suggests that compliance with the ETS European...
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