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European Emissons Trading System

"Better Than the Alternatives"

July 3, 2012 | by SGI NEWS

A. Denny Ellerman from the European University Institute (EUI) is one of the leading experts on emissions trading. SGI News spoke with him about the European Emissions Trading System and the potential of the system on a global scale.

SGI News: Looking at the SGI-Comparison of OECD-Countries you can see that most EU countries perform better in terms of CO2-emissions than other industrialized countries. Why is it so and to what extent do you think this is a consequence of the EU Emissions Trading System (EU ETS)?

A. Denny Ellerman © A. Denny Ellerman

A. Denny Ellerman: Inter-country differences in CO2-emissions er capita or per unit of GDP differences in industrial structure, resource endowments, and spatial characteristics more than energy policy, much less environmental policy. You will notice that the top three countries are heavily endowed with hydro resources. France is an exception only in that their dependence on nuclear results from an explicit energy policy decision. Thus I don't think these differences have anything to do with the EU Trading System; they existed long before the EU ETS became a reality. Nor do I think these differences should be taken as a reflection on the success of the EU ETS. I do think the EU Emissions Trading System is a success, but that is another question.

SGI News: How could the EU ETS be improved for the future?

Ellerman:
I think it is doing pretty well. EUA (European Union Allowance) prices are low chiefly because of the recession and euro crisis. This should not be a surprise and prices will recover with economic growth. Renewable energy promotion is also suppressing the EUA price since wind and other resources tend to displace coal or natural gas generation of electricity and thereby reduce demand for allowances. The magnitude of this effect is open to question and whether or not it is a good thing can be debated. Still it is there. In due course, the time will come to adjust certain features of the EU ETS, perhaps to tighten the cap, link to other systems, etc. But for now I would argue that the best thing is to leave it alone. Fortunately, set asides are not easy to implement institutionally and I would argue that they are a bad step down a slippery slope of intervening whenever current or transient circumstances seem to justify. The one major change I would advocate eventually is an expansion of the ETS scope to include all the economy, that is including, all transportation and residential and commercial energy use.

SGI News:
The combat against climate change deserves a concerted action. Could a global emission trading system be the answer to this challenge?

Ellerman: It could be, but it will take a long time. This is true of all alternatives and I think that a global trading system has a better chance of leading to effective action that the alternatives. Fortunately, climate change is a long-term problem that will be with us for the century and everything does not have to be decided now, even if that were possible.

SGI News: How could a „global governance policy“ against climate change look like?

Ellerman:
Essentially, it is a matter of inducing major emitters to take action preferably in the form of a trading system. Doing so involves a lot of institutional preparation and solving some major problems of equity prospects. I think the Durban platform is an improvement in putting the global community on that path.

Interview conducted by Jörg Frommann