The EU’s Emissions Trading System, Part 2: A Political Economy Critique

Abstract

ABSTRACTThis is part 2 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. In part 1 of the paper the basic design, the workings and the outcomes of the scheme were discussed with critical perceptiveness. In particular, the paper revealed the unsatisfactory results of the scheme (even in its own proclaimed aims), including allowances surplus, allowance trades for pure financial profit, low and volatile prices 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, proclaimed by mainstream analyses as the major vehicle for the transition to a low-carbon economy. In particular, the complications and instabilities created by the increasing financialization of the carbon market are exposed. Moreover, the ineffectiveness of the ETS as a catalyst for investments in clean energy technologies, especially in times of economic crisis, is substantiated. Since the deep embeddedness of the scheme in capitalism risks climate sustainability, the analysis concludes that a more radical transformation of society with an eco-socialist orientation is needed.