Mitigating through the market: The EU's emissions trading system

Nii Lantey Malik Aryee-Boi, Isabella Hauck, Anna Lotta Noisten and Maurice Weinhold

No 268/2026, IPE Working Papers from Berlin School of Economics and Law, Institute for International Political Economy (IPE)

Abstract: The European Union (EU) Emissions Trading System (ETS) is an example of market-based environmental governance. While it has delivered measurable emission reductions in covered sectors, especially after major post-2013 reforms, its fairness, legitimacy, and transformative capacity remain contested. Therefore, this paper asks to what extent the EU ETS has contributed to emission reductions in the EU and what limitations emerge when it is assessed from a social-ecological economics (SEE) perspective. Using a qualitative, literature-based approach, it combines empirical studies on environmental and economic impacts of the ETS with a comparative theoretical framework that contrasts neoclassical environmental economics with SEE. The analysis shows that, on neoclassical terms, the ETS qualifies as a relatively efficient and adaptive carbon market, achieving targeted abatements at limited aggregate costs. However, when evaluated against broader criteria of ecological adequacy, distributional justice, governance and power, transformation potential and precaution, the system's marketcentred architecture commodifies atmospheric capacity, leaves the scale of socioeconomic metabolism and growth dependence largely untouched, and only partially addresses inequalities through ex post correction. In doing so, the paper bridges mainstream carbon pricing debates with SEE, arguing that emissions trading can support mitigation but must be subordinated to more far-reaching strategies of regulation, sufficiency, and socio-ecological provisioning if the EU is to align climate policy with planetary boundaries and social justice.

Keywords: Emissions Trading; neoclassic; socio-ecological economics; European Union (search for similar items in EconPapers)
JEL-codes: F55 Q52 Q56 Q57 (search for similar items in EconPapers)
Date: 2026
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