Compared to the project-based mechanisms such as CDM and JI, the ETS in the Kyoto Protocol is a relatively simple instrument. This is how it works: the Protocol establishes the basic unit of account -the Assigned Amount Unit, or AAU. Each AAU is worth one tonne of carbon dioxide equivalent or tCO2e. Each country has a certain number of AAUs depending on its target under Kyoto. Each country then aims to keep its average emissions for the 2008-2012 period within that number of AAUs. This can include those credits they have gained through investments in the CDM or in JI. If they can't achieve this, however, they can buy AAUs from other states that have over-complied with their targets, and thus have spare AAUs to sell. The UN climate secretariat maintains a log of transactions which covers all three mechanisms - the emissions trading scheme, the CDM and JI -to prevent double counting. States simply contract with other states to buy or sell AAUs from them and have those trades registered with the secretariat.

the proliferation of emissions trading schemes

Since its initial insertion into the Kyoto Protocol, emissions trading schemes have spread to other sites. They are now in the process of becoming a standard part, even the central element, of states' regulatory tools to deal with climate change.

The first attempt to create such as system was to come from an unlikely source. Shortly after opposing emissions trading throughout most of the Kyoto negotiations, and only accepting it reluctantly, the EU did a complete U-turn in 1998, deciding to create its own internal emissions trading scheme as part of its strategy to meet its Kyoto target.

In fact, European opposition to emissions trading was never as principled or as robust as some of the diplomatic posturing around that time suggested. A consensus about the desirability of a strongly market-based approach to action on climate had been developing for some time. Since the early 1990s there is mention in EU policy documents of the benefits of such schemes, way before the publication in 2000 of the European Commission's Green Paper on GHG Emissions Trading, which launched emissions trading as a key component of EU climate change strategy.

Indeed, a constant source of frustration for advocates of climate action within the EU is that all actions on climate have to be justified in relation to the broader objective of realising full market integration.1 Proposed measures that impinge upon that goal or which challenge the logic of the market are quickly sidelined. Construction of new carbon markets was always more popular than an EU carbon tax which, as we saw in Chapter 3 , produced one of the largest and most ferocious industry lobbying campaigns ever seen in Brussels. While it made sense in political terms to maintain distance from the US stance, the EU's position was never, in truth, so strongly opposed to emissions trading and its neoliberal logic.

On the contrary. Momentum was gathering in Europe for an emissions trading scheme. For a long time the EU had struggled with ways of allocating responsibility for tackling climate change between member states with highly uneven degrees of development. 'Burden-sharing' was the phrase that was used to describe an arrangement whereby wealthier countries with a larger climate footprint such as the UK and Germany would be expected to reduce their emissions by a proportionally greater amount than countries such as Portugal and Spain. But differentiating between collective (EU) and individual country targets caused confusion among negotiating partners such as the USA. How individual member state and collective responsibilities were to be divided and calculated was not always clear, a feature of the division of competence between the EU institutions (the Commission, the Parliament and the Council of Ministers). But the arrangement paved the way for an intra-community emissions trading scheme.

the eu emissions trading scheme

Since New Year's Day 2005, a price has been paid for almost half of the CO2 emissions generated by the EU, a region that collectively accounts for about 20% of the world's GNP and 17% of the world's energy-related CO2 emissions.2 The European Union's Emission Trading Scheme (EU ETS) was, and remains, the world's first large-scale emissions trading programme.

The scheme operates what emissions trading designers call a 'downstream' system. That is to say, anyone who emits a large amount of CO2 at a point source, such as a large factory, power station or oil refinery, is required to have enough allowances (the acronym in

1 W. Grant, D. Matthews and P. Newell, The Effectiveness of EU Environmental Policy (Basingstoke: MacMillan, 2000).

2 A. Denny Ellerman and B. K. Buchner, 'The European Union Emissions Trading Scheme: Origins, Allocation and Early Results', Review of Environmental Economics and Policy, 1(1) (2007), 66-87.

The EU Emissions Trading Scheme

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