EU Greenhouse Gases Emission Trading Scheme a "Path Breaking Public Policy Experiment" New Book Reports

The European Union Emissions Trading Scheme (ETS) "is one of the most exciting and important initiatives ever taken to limit greenhouse gas emissions" according to the new book "Pricing Carbon: The European Union Emissions Trading Scheme." Authored by Frank J. Convery of University College Dublin, A. Denny Ellerman of the Massachusetts Institute of Technology, and Christian de Perthuis of the Universite de Paris IX, the book analyses the first period of the ETS, which ran from 2005 through 2007.

The ETS is currently in its second stage, which runs from 2008 to 2012. The third stage of the ETS begins in 2013 and runs through 2020. According to the publisher, Cambridge University Press, the book is the "first comprehensive assessment of the EU ETS."

In the book's introduction, the authors argue that the European legislation "will be an important influence on the development and implementation of trading schemes in the United States, Japan, and elsewhere. As such, it can provide the cornerstone for an eventual global grading regime, which will be an important component of the set of policies that will be needed to address climate change."

The book also makes several other interesting observations about this first phase of the ETS, a phase that many have concluded was less than successful because of the oversupply of emissions allowances caused when the European Commission approved too many allowance requests by the EU's member states. Among the observations:

• The "EU ETS was a product of two failures. First, the European Commission failed in its initiative to introduce an effective EU-wide carbon energy tax in the 1990s. Second, the Commission fought unsuccessfully against the inclusion of trading, as a flexible instrument in the Kyoto Protocol in 1997?[T]hese apparent setbacks were followed by the successful creation of an EU-wide market in carbon dioxide."

• "Carbon emissions trading in Europe has finally lifted the environment from the boiler room to the boardroom, from ministries of environment to ministries of finance, from local councils to Cabinet tables. For chief executives of many major corporations, the environment and the carbon market has become an omnipresent, if not always welcome, guest at their strategic tables?The ETS is orders of magnitude more significant in terms of its scope, ambition, and likely impact than any other application of environmental economics."

• "Creating a carbon market at the heart of Europe was a means of providing not only a price signal, but also a practical fulcrum that could enhance the effectiveness and coherence of other, parallel EU policies, demonstrate global leadership by the European Union and provide encouragement to, and a framework for, the rest of the world to join in the effort."

A recent article in the BNA International Environment Daily ("Transatlantic Study Finds EU Trading Scheme Successfully Cut Greenhouse Gas Emission," Feb. 12, 2010) said, "According to the study, emissions reductions achieved in the ETS first three years were obtained in cost-effective ways with moderate implementation and transaction cost, while there was no loss of competitiveness for the firms required to participate."