Argument: EU cap-and-trade system is new; difficulties will be worked out

Issue Report: Cap-and-trade versus carbon tax

Issue Report: Carbon emissions trading

Support and analysis

Eileen Claussen (president of the Pew Center on Global Climate Change) and Judith Greenwald (director of innovative solutions at the Pew Center), “Handling Climate Change”, Miami Herald, 7/12/07 – “As for the cap-and-trade system in Europe, it is actually a major success. The system covers more than 10,000 sources and has spawned a robust emissions trading market with millions of transactions per month. So why the bum rap for cap-and-trade in Europe? It is a classic case of no good deed going unpunished. Cap-and-trade is the EU’s primary means of complying with the Kyoto Protocol, which requires emissions reductions between 2008 and 2012. Looking ahead to the five-year compliance period, the EU wisely launched a learning phase for its emissions trading system. And, it has learned a lot. For example, the European Union learned that its emissions data were flawed and that companies could reap windfall profits by reducing emissions much more cheaply than had been expected. The EU thus is rapidly improving its emission data, and in 2008 it will allocate a smaller percentage of emission allowances. To commentators appalled that the EU’s system thus far hasn’t achieved significant emissions reductions or caused industry much pain, the response is clear: they weren’t trying to reduce emissions yet. They were just getting their system up and running.”

Benjamin Goldstein of the Center for American Progress. “Learning from Europe: Designing Cap-and-Trade Programs that Works”. June 1, 2007. – “From the very beginning, this first phase of the European Union Emissions Trading Scheme, or EU-ETS, was intended to be a learning period to work out the kinks and entice major greenhouse gas emitters on board. On January 1, 2005, the EU-ETS came onlineā€”a cap-and-trade program covering approximately 12,000 installations (including electricity production and some heavy industry) in all 27 member countries of the European Union and representing roughly 45 percent of total EU CO2 emissions. Phase 1 of this new program, which runs from 2005 through 2007, was designed to prepare the European Union to meet its commitments under the global Kyoto Protocol during Phase 2 of the EU-ETS rollout, from 2008 to 2012. The European Union anticipated that a new, complex, and wide-ranging marketplace would encounter glitches and inefficiencies upon inception, which is why they designated Phase I of the EU-ETS as a ‘trial and error’ period. The lessons learned from these initial three years will help Europe improve Phase 2 of the EU-ETS. Moreover, these lessons will prove valuable for the United States as it designs and implements its own nationwide cap-and-trade program.”

Researchers at Open Europe, a British economics think tank, issued a report in the Spring of 2007 concluding that the EU Greenhouse Gas Emissions Trading Scheme represents “botched central planning rather than a real market.”[1] This is not a condemnation of this market-based system. It is, rather, a condemnation of the EU’s execution of a theoretically sound cap-and-trade system, which performed splendidly in reducing sulfur dioxide emissions in the United States.