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Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy

Joseph Kruger, Wallace Oates and William Pizer

Discussion Papers from Resources For the Future

Abstract: In 2005, the European Union introduced the largest and most ambitious emissions trading program in the world to meet its Kyoto commitments for the containment of global climate change. The EU Emissions Trading Scheme (EU ETS) has some distinctive features that differentiate it from the more standard model of emissions trading. In particular, it has a relatively decentralized structure that gives individual member states responsibility for setting targets, allocating permits, determining verification and enforcement, and making some choices about flexibility. It is also a “cap-within-a-cap,” seeking to achieve the Kyoto targets while only covering about half of EU emissions. Finally, it is a program that many hope will link with other greenhouse gas trading programs in the future—something we have not seen among existing trading systems. Examining these features coupled with recent EU ETS experience offers lessons about how cost effectiveness, equity, flexibility, and compliance fare in a multi-jurisdictional trading program, and highlights the challenges facing a global emissions trading regime.

Keywords: emissions trading; Kyoto Protocol; European Union; linking; climate change (search for similar items in EconPapers)
JEL-codes: Q54 Q58 F53 (search for similar items in EconPapers)
Date: 2007-02-05
New Economics Papers: this item is included in nep-eec, nep-ene and nep-env
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