The EU’s Emissions Trading System, Part 1: Taking Stock

Abstract

ABSTRACTThis is part 1 of a paper that revisits the European Union’s Emissions Trading System (EU ETS) in an attempt to take stock of how the system has worked and evaluate it from the standpoint of radical political economy. The paper briefly discusses the basics of the scheme, including its design as a financial instrument and its performance during the first trading period (2005–2007). It then moves to elaborating on the workings of the scheme during phase 2 (2008–2012) and on the initiation of phase 3 (2013–2014). This analysis discusses the adjustments and the extensions of the scheme, compliance results and allowance trades and prices with a critical eye. The paper reveals the unsatisfactory results of the scheme (even in its own proclaimed aims), which include allowances surplus, allowance trades for pure financial purposes, low and volatile price of allowances, windfall profits, extensive use of Kyoto project-based credits, and several malfunctions and instances of fraud. These findings set the ground for part 2 of the paper which offers a critical assessment of ETS from the standpoint of radical political economy, putting emphasis on the needs and interests of the unprivileged working people.