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 7: ETS Reform and Carbon Leakage: Assessing the Inconsistencies of the New ETS Directive

Stefano Clò


1. INTRODUCTION During the meeting held in Brussels on 8–9 March 2007, the European Council declared its intention to strengthen the European climate policy beyond the Kyoto Protocol commitment. On 23 January 2008, the EC published a package of proposals, the so-called Climate and Energy Package, aimed at mitigating climate change and promoting renewable energy sources through 2020 and beyond. The EC officially expressed its firm intention to cut unilaterally European emissions by 20 per cent below 1990 levels by 2020 in the case that no international post-Kyoto treaty would have been signed.1 Moreover, the EC published a proposal designed to amend the first ETS Directive 2003/87/EC (COM 2008 16 final). A revised version of the Commission’s proposal was officially approved by both the European Council and the European Parliament on 17 December 2008, and was finally adopted in April 2009. The new ETS Directive 2009/29/EC amending the first ETS Directive 2003/87/EC first extends the EU ETS to a third post-Kyoto trading period (2013–2020). Moreover, it reforms the ETS institutional framework in order to improve its functioning and effectiveness in promoting the reduction of CO2 emissions. Indeed, according to the EC itself, ‘the overall functioning of the Emissions Trading Scheme could be improved in a number of aspects’ (COM 2008 16 final, p. 2). In light of the new ETS Directive, it becomes relevant to study if and how the ETS functioning will be effectively improved during its third 1 The EC also declared its willingness to reduce...

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