Content area
Full Text
ABSTRACT
This paper reviews the main characteristics of climate policy, emission trading and the European Union Emission Trading Scheme (EU ETS). First, we present the origins of emission trading and climate policy. We also discuss the last negotiations on how to prolong the Kyoto Protocol and the international climate policies beyond 2012. Second, we review previous experiences of emission trading prior to the launch of the EU ETS. Finally, we give a wide overview of the EU ETS. The main factors that affect the functioning of the EU ETS are then discussed, as well as the changes that will be effective for Phase 3 (2013-2020).
Keywords: Climate Policy, Emission Trading, EU ETS
1. INTRODUCTION
In ratifying the Kyoto Protocol, the European Union committed itself to reducing its greenhouse gas (GHG) emissions by 8% relative to the 1990 level in the first Kyoto commitment period (2008-2012). In January 2005, to meet this target in a cost-effective way, the European Union established the European Union Emission Trading Scheme (EU ETS), a cap-and-trade system for carbon emissions in the energy and industrial sectors. It is the world's largest emissions trading system to date. According to the 2003/87/EC directive, the EU ETS covers about 11,000 installations,1 which represent almost 50% of CO2 emissions and 40% of total GHG emissions in the European Union.
Even though the EU ETS is still, by far, the more ambitious emission trading program for GHG emissions, many others GHG emissions trading schemes have been implemented in the last few years and several are on the horizon. There are now GHG emissions trading schemes in America, Europe and Oceania. These programs are closely related to the Kyoto Protocol Flexibility Mechanisms: the Joint Implementation mechanism, the Clean Development Mechanism, and the Emissions Trading mechanism. What is now commonly called "carbon trading" or "carbon finance" is becoming an important issue, not only for covered installations but also for financial companies that provide trading facilities (exchanges, clearing houses, etc) and financial services (analyses, brokerage, portfolio and risk management, etc). Banks and investment funds are also interested in carbon markets because they provide new opportunities for making money and for portfolio diversification. The aim of this paper is to provide a wide overview of climate policy and carbon...