Competitiveness and the Future of Carbon Trading: A View from Europe

• With the first phase of the EU ETS now complete and the system in its second (Kyoto) phase, what has been learned to date?
• What is now proposed for the future of the EU ETS beyond 2012 – with the recent structure proposed for a third term, right out to 2020?
• And what may the EU ETS experience and future plans imply for the international effort to control climate change?

The EU ETS covers 45 percent of European CO2 emissions. Concerns about the loss of industrial competitiveness and leakage of CO2 emissions remain one of the major barriers to placing more robust CO2 mitigation obligations on industrial sectors in the EU. A January 15 report by Climate Strategies, “Differentiation and Dynamics of EU ETS Industrial Competitiveness Impacts,” analyzes what would happen if Europe presses ahead with strong CO2 prices without waiting for similar policies elsewhere. The study finds that competitiveness and leakage concerns are no threat to the viability of the EU ETS overall, but can be analyzed and addressed for the individual sectors affected. Various policy instruments are available, and the best option can be selected individually for each of the affected sectors.

The Environmental and Energy Study Institute (EESI) invites you to a briefing addressing the efficiency of a cap-and-trade approach to controlling carbon emissions. The cap-and-trade approach is often set against concerns about its possible impact on industrial competitiveness. These and related concerns led to significant excess allocation of free allowances in the first phase of the European Union’s Emissions Trading Scheme (EU ETS), which caps carbon from five major trading industrial sectors, in addition to power generation.

• Professor Michael Grubb is Chief Economist at the UK’s Carbon Trust, the $200 million/year public-private partnership established by the UK government and business to kick-start the UK’s transition to a low carbon economy. He combines this with academic positions at Cambridge University and Imperial College London. Prof. Grubb was also recently appointed to the UK government’s Committee on Climate Change, being established under the UK Climate Change Bill, with statutory powers to advise the UK government on future carbon reduction targets and to monitor government progress towards those targets.
• Carbon Trust Annual report 2006-07
• Allocation and competitiveness in the EU Emissions Trading System: Options for Phase II and beyond
• EU ETS Phase II allocation: implications and lessons
• The UK Climate Change Programme: Potential evolution for business and the public sector