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

34 Pages Posted: 19 Jul 2007 Last revised: 5 Dec 2008

See all articles by Joseph A. Kruger

Joseph A. Kruger

Resources for the Future

Wallace E. Oates

University of Maryland - Department of Economics; Resources for the Future

William A. Pizer

Duke University

Date Written: February 1, 2007

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

JEL Classification: Q54, Q58, F53

Suggested Citation

Kruger, Joseph A. and Oates, Wallace and Pizer, William A., Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy (February 1, 2007). Available at SSRN: https://ssrn.com/abstract=1001437 or http://dx.doi.org/10.2139/ssrn.1001437

Joseph A. Kruger

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Wallace Oates

University of Maryland - Department of Economics ( email )

Tydings Hall
College Park, MD 20742
United States
301 405-3496 (Phone)

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

William A. Pizer (Contact Author)

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

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