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The EU ETS: The Pioneer—Main Purpose, Structure and Features

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The European Emission Trading System and Its Followers

Part of the book series: SpringerBriefs in Environmental Science ((BRIEFSENVIRONMENTAL))

Abstract

This chapter describes the main features, structures and scope of the European Emission Trading Scheme (EU ETS), which has played a leading role among the existing ETSs on greenhouse gases (GHG), being a sort of pioneer of the large-scale domestic/regional ETSs around the world. Particular attention is devoted to the specific features underlying the legal and economic design of the systems, including the GHG being covered and the sectors involved, the allocation mechanisms, the evolution of the carbon pricing and the subsequent revisions of the EU ETS (e.g. the NER300 programme and the back-loading mechanism) that have been implemented to face some of the problems encountered so far.

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Notes

  1. 1.

    The EU Climate and Energy Package: EC Decision 406/2009 (Effort Sharing); EC Directive 2009/28 (Renewable Energies); EC Directive 2009/29 (New EU ETS Scheme); EC Directive 2009/31 (CCS Scheme).

  2. 2.

    COM (2011) 112 final, Communication from the Commission A Roadmap for moving to a competitive low carbon economy in 2050.

  3. 3.

    On the EU 2030 Framework for Climate and Energy Policies see, inter alia, Commission Green Paper COM (2013) 169 final, A 2030 framework for climate and energy policies; Commission Communication COM (2014) 15 final A policy framework for climate and energy in the period from 2020 to 2030 and the Conclusions of the European Council of 22–23 October 2014.

  4. 4.

    From now onwards, when referring to the EU ETS Directive we will refer to EC Directive 2003/87 as amended by EC Directive 2009/29 even when not citing both Directives.

  5. 5.

    Iceland, Norway and Liechtenstein are the only remaining members of the European Economic Area, which links the European Free Trade Agreement (EFTA) States with the EU.

  6. 6.

    See also article 12.3 EU ETS Directive.

  7. 7.

    The excess emissions penalty relating to allowances issued from January 1 2013 onwards shall increase in accordance with the European index of consumer prices.

  8. 8.

    The 2013 Cap is set by EU Decision 2010/634 (Commission Decision of 22 October 2010 adjusting the Union-wide quantity of allowances to be issued under the Union Scheme for 2013 and repealing Decision 2010/384/EU). The Caps for the following years are calculated decreasing the 2013 amount of allowances by a given linear factor.

  9. 9.

    The original list adopted in 2009 with EU Decision 2010/2 was amended by two subsequent Commission Decisions. These are as follows: EU Commission Decision 2011/745 of 11 November 2011 amending EU Decisions 2010/2 and 2011/278 as regards the sectors and subsectors which are deemed to be exposed to a significant risk of carbon leakage (document C (2011) 8017) and EU Commission Decision amending EU Decisions 2010/2 and 2011/278 as regards the sectors and subsectors which are deemed to be exposed to a significant risk of carbon leakage (document C (2012) 5715).

  10. 10.

    The EU Commission took the first award decision in December 2012, see C (2012) 9432 final Commission implementing Decision of 18.12.2012 Award Decision under the first call for proposals of the NER300 funding programme.

  11. 11.

    Thomson Reuters (2014) “EU carbon price to average €23/t between 2021 and 2030: Thomson Reuters assess the future”, August 28, 2014. http://blog.financial.thomsonreuters.com/eu-carbon-price-average-e23t-2021-2030-thomson-reuters-assess-future/.

  12. 12.

    See Schleich et al. (2006) for an analysis of the implications of the EU decision to ban banking in Phase I and of the related efficiency losses based on simulation results.

  13. 13.

    On the optimal policy mix between carbon pricing and energy policies (such as energy efficiency and support to renewables) see the interesting contributions published by Lecuyer and Quirion (2013) and Hood (2013) who provide further theoretical insights and guidance for policymakers on this issue.

  14. 14.

    Please note that we are not claiming here the existence of a direction of causality between the two phenomena. Their correlation, however, is relevant to assess the evolution of the overall market volume, as described below.

  15. 15.

    The updated values reported in the last row of Table 1.3 have been computed by the authors based on the periodic reports of the EUAs auctioned on the primary market in the three EU validated markets: the Transitional Common Auction Platform; Auction Platform Germany; Auction Platform UK (see http://ec.europa.eu/clima/policies/ets/cap/auctioning/documentation_en.htm). These data are consistent with the estimations reported in the document recently published by the Italian Manager of Energy Services.

  16. 16.

    Source European Commission (http://ec.europa.eu/clima/policies/ets/documentation_en.htm).

  17. 17.

    It should be noted that the auction on 12 March 2013 had to be cancelled because it would have otherwise cleared below the reserve price.

  18. 18.

    This point has been illustrated in heuristic terms by Borghesi (2011) using a simple analytical framework.

  19. 19.

    The CIS data set is the main data source for measuring innovation (including environment-related innovation) in Europe. The aggregated data, disseminated on the Eurostat Webpage, covers several dimensions of the innovations performed by enterprises such as product and process innovation, innovation activity and expenditure, effects of innovation, innovation cooperation, public finding of innovation, source of information for innovation patents.

  20. 20.

    See Borghesi et al. (2016) for an empirical analysis of the differential impact of the EU ETS on FDI in the Italian context which distinguishes firms that receive permits for free in the new ETS phase (since they are subject to the risk of carbon leakage) from the rest of the Italian ETS firms. See also Martin et al. (2014a, b) for in-depth analyses of the decision to exempt some sectors from auctioning.

  21. 21.

    Report from the Commission to the European Parliament and the Council, The State of the European carbon market 2012, COM (2012) 652 final.

  22. 22.

    Decision No 1359/2013/EU of the European Parliament and of the Council of 17 December 2013 amending Directive 2003/87/EC clarifying provisions on the timing of auctions of greenhouse gas. See OJ L 343 19.12.2013, p. 0001.

  23. 23.

    Commission Regulation (EU) No. 176/2014 of 25 February 2014 amending Regulation (EU) No 1031/2010 in particular to determine the volumes of greenhouse gas emission allowances to be auctioned in 2013–20.

  24. 24.

    See COM (2014) 20, Proposal concerning the establishment and operation of a market stability reserve for the Union greenhouse gas Emission Trading scheme and amending Directive 2003/87/EC.

  25. 25.

    See COM (2014) 15, A policy framework for climate and energy in the period from 2020 to 2030.

  26. 26.

    It should be noted that, at the moment of writing, the Decision of the European Parliament and of the Council concerning the establishment and operation of a market stability reserve is still awaiting publication on the Official Journal of the European Union.

  27. 27.

    Source European Commission, (http://ec.europa.eu/clima/policies/ets/reform/index_en.htm).

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Authors and Affiliations

  1. University of Siena, Siena, Italy

    Simone Borghesi, Massimiliano Montini & Alessandra Barreca

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  1. Simone Borghesi
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  2. Massimiliano Montini
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  3. Alessandra Barreca
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Correspondence to Simone Borghesi .

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Borghesi, S., Montini, M., Barreca, A. (2016). The EU ETS: The Pioneer—Main Purpose, Structure and Features. In: The European Emission Trading System and Its Followers. SpringerBriefs in Environmental Science. Springer, Cham. https://doi.org/10.1007/978-3-319-31186-9_1

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