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Extra Territoriality and the Failure of the EU's Emissions Trading Policy

Ian Barnes

The European Union's Emissions Trading Scheme (ETS) is the largest of its type in the world and came into existence as a devolved alternative to a failed attempt to introduce an EU wide carbon tax. When it was launched in 2005, the ETS was regarded by some as a major step towards combating climate change, and yet by 2013 it is generally believed to have failed to deliver the promised reductions in carbon emissions. Instead it has created a mechanism which is susceptible to fraud, gross levels of profiteering and it is a mechanism which has been subject to gaming by many industry players. A combination of too many permits being issued and a falling off in demand for them due to the recession, along with real technological improvements led to a surplus of credits. Whilst these events might well have been unforeseen, the result was that the price of carbon credits fell and the main driver of reductions in emissions could be attributed the state of the economy. So ETS proved to be a poor substitute for the carbon tax or even no action at all. Added to this, the attempt to widen the scheme to include international airline traffic led to threats of sanctions from the EU's trading partners, including the possibility of a boycott of the Airbus by China. The decision has been made to suspend the widening of the scheme. This paper argues that ETS is not only a distraction but also an inefficient way to reduce emissions. However, it may well be that international pressure actually benefits the EU by forcing it to either introduce major reforms or even abandon it.

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