PDF _ RL34150 - Climate Change: The EU Emissions Trading Scheme (ETS) Gets Ready for Kyoto
11-Feb-2008; Larry Parker; 30 p.

Update: Previous releases:
November 6, 2007

Abstract: The European Union’s (EU) Emissions Trading Scheme (ETS) is a cornerstone of the EU’s efforts to meet its obligation under the Kyoto Protocol. It covers more than 11,500 energy intensive facilities across the 27 EU Member countries; covered entities emit about 45% of the EU’s carbon dioxide emissions. A “Phase 1” trading period began January 1, 2005. A second, Phase 2, trading period will begin in 2008, covering the period of the Kyoto Protocol, with a third one planned for 2013.

Several positives resulting from the Phase 1 “learning by doing” exercise may assist the ETS in making the Phase 2 process run more smoothly, including: (1) greatly improving emissions data, (2) encouraging development of the Kyoto Protocol’s project-based mechanisms — Clean Development Mechanism (CDM) and Joint Implementation (JI), and (3) influencing corporate behavior to begin pricing in the value of allowances in decision-making, particularly in the electric utility sector.

However, several issues that arose during the first phase remain contentious as the ETS moves into Phase 2, including allocation schemes, shutdown credits and new entrant reserves, and others. In addition, the expansion of the EU and the implementation of the directives linking the ETS to the Kyoto Protocol project-based mechanisms created new issues to which Phase 2 has had to respond.

The United States is not a party to Kyoto. However, almost three years of carbon emissions trading has given the EU valuable experience as it prepares for Kyoto. This experience, along with the process of developing Phase 2 NAPs, may provide some insight into cap-and-trade design issues currently being debated in the U.S.

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Topics: Climate Change, Economics & Trade, International

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