Pietro Quercia, Polluting for Profit: The Paradox of the EU’s Emissions Trading System, IAI Commentaries, 19:38, IAI, June 2019.
The European Union has long been considered at the forefront of the fight against climate change. When, in the early 2000s, the EU Commission proposed a carbon market where CO2 emissions would be penalised through a carbon price, the idea was considered innovative. The EU Emission Trading Schemes (EU ETS) now covers more than 11,000 polluting companies and consists in the establishment of a market where firms trade emission allowances to cover their annual CO2 emissions. A single European Union Allowance equals one tonne of CO2 or other greenhouse gases. The balance between the supply and the demand for allowances determines the price of these emission permits, and so the carbon price. This ideal outcome, however, only holds true if the price of emissions is high enough to make decarbonization cheaper than the purchasing of allowances. This has not been the case, as the EU ETS has maintained a very low carbon price until very recent times.
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