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Emission Trading Schemes in Europe: Linking the EU Emissions Trading with National Programs

Sven Bode

In: Hansjürgens, Bernd (Ed.) Emissions Trading for Climate Policy - US and European Perspectives (2005), Cambridge University Press, p. 199-221

INTRODUCTION

Emission trading was first introduced in the US during the mid 1970s. It was applied in several ways (e.g. lead-free petrol, ozone depleting chemicals) among which the acid rain programme may have the closest similarity with potential national CO2 trading schemes (UN 1995 pp. 19-23). In the context of the UN Framework Convention on Climate Change it first looked as if taxes could be the instruments of choice for countries to control the GHG emissions (NRP 1995 p.1). However, emission trading on state level was finally formally introduced with the Kyoto-Protocol agreed on in 1997. As Parties to the Protocol lack information on abatement options and costs, the theoretical efficiency gains may never be realised by nation to nation trading. This may be one reason why the discussion on national trading schemes, i.e. involving sub-national entities, has remarkably intensified since then: Numerous reports by “industry/governmental” working groups have been published throughout the industrialised world. With national schemes emerging, the question of linkage evolves. We analyse this aspect in general.

On the other hand there are, by now, two existing schemes in Europe. We describe these two systems and see how they can be linked with regard to technical feasibility, environmental integrity and economic impacts. The latter aspect will be investigated with a focus on the interaction of linking national schemes in the context of the Kyoto-provisions only, as it is generally understood that linking of different schemes itself increases overall cost-efficiency.