The EU Considers Additional Steps to Improve the EU Emissions Trading System

EDF recently published a report examining the results and lessons learned from the world’s first and largest multinational cap-and-trade program to limit carbon pollution: the European Union Emissions Trading System (EU ETS). The report was designed to assist those jurisdictions like California, China, Australia, the Republic of Korea, and others implementing – or considering adopting – carbon cap-and-trade systems, and to highlight what can be learned from the pathbreaking experience of the EU ETS.

The EU ETS continues to evolve, with current debates in the EU focused on how to improve the system as it transitions to a new trading period next year. The EU is considering several reform proposals, including a short-term reform that would delay the auction of new emissions trading allowances until later in the trading period (“backloading”).

The EU’s backloading proposal is a justifiable short-term step that would give the EU time to consider additional structural reforms needed to build on the EU ETS’s success in reducing Europe’s carbon emissions. For instance, the EU’s success thus far in laying the foundation for achieving its 20% emissions reduction target by 2020 has prompted persistent calls among stakeholders in Europe to tighten the EU’s economy-wide target even further: to 30% below 1990 levels by 2020*, or to set an ambitious target beyond 2020 that would provide additional confidence to market actors to make long term investments in low-carbon innovation. The EU plans to publish by November 14 a carbon market report that examines options to increase the long-term ambition of the EU ETS.

A tighter EU ETS target for 2020 and beyond would not only help the EU achieve its aspirational emission reduction target of 80-95% below 2005 levels by 2050, but – according to one study – could create millions of jobs while bolstering investment and GDP growth.

Doing so would also send an important message about EU climate leadership, providing another lesson to the world on how to chart a path forward to tackle the climate challenge.

*Note: The EU has both economy-wide reduction targets and targets under the EU ETS, which includes the power and industrial sectors, among others. At present, emissions under the EU ETS account for approximately 40% of the EU’s total greenhouse gas emissions.

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