This term paper discusses how to improve the European Union Emission Trading Scheme to have the lowest possible influence on companies with the highest possible reduction of greenhouse gases. Even though in theory this scheme may appear flawless there are a few conflicts and negative consequences which have a big influence on some participating countries.
To get an overview, the problem of the emissions has to be explained first. After that, it is essential to explain the theory of the European Union Emission Trading Scheme with a summary of the main expected theoretical effects. There must be an empirical evaluation about the real effects in comparison to the theoretical expected ones. This part will be followed by a discussion on how the government needs to change the scheme to improve the consequences. At last, there will be a conclusion which will sum up the outcome of the discussion and give a perspective on the future.
Being and staying healthy is one of the greatest wishes of humanity because it is assuring a longer life. But not only a highly developed health system protects people from illnesses, also living in a clean and safe environment extends the span of life. This is why it is always interesting to discuss new solutions of the government which shall protect the environment, improve our climate and increase our sustainability. In year 1997 the Kyoto protocol was added to the United Nations Framework Convention on Climate Change, short UNFCCC, to reduce those emissions gradually. In addition to this contract the European Union created in 2005 the European Union Emission Trading Scheme, short EU ETS. It allows companies to buy and trade a certain amount of emission permits.
Table of Contents
1. Introduction
2. The natural and anthropogenic greenhouse-effect
3. The European Union Emission Trading Scheme
3.1 The effects of pollution on the market
3.2 The Emission Trading Scheme and its expected effects
4. Empirical evaluation
5. Consequences
6. Conclusion
Research Objectives and Core Topics
This paper examines the efficiency and challenges of the European Union Emission Trading Scheme (EU ETS) in reducing greenhouse gas emissions. The primary research goal is to evaluate whether the theoretical benefits of this market-based policy translate into real-world effectiveness, considering issues such as price volatility and administrative challenges.
- The mechanics of the EU Emission Trading Scheme (Cap-and-Trade).
- Theoretical comparison between Pigovian taxes and tradeable pollution permits.
- Empirical analysis of market performance and factors influencing certificate prices.
- Policy challenges including fraudulent activities and sector-specific exemptions.
- Strategic recommendations for improving the future functionality of the ETS.
Excerpt from the Book
3.1 The effects of pollution on the market
Pollution is a negative externality, because it affects the well-being on society and therefore produces social costs. Most of the companies make their decisions without considering the impact on bystanders. Therefore the market equilibrium is not efficient anymore, because it is not able to maximize the total gain. Society on the other hand has to take account of the social costs, which is why the market optimum shifts to a smaller quantity than the previous equilibrium.
Now there are two possibilities to solve the inefficiency: Either companies try to find a private solution or the government has to correct the market failure by law. In this case, private solutions are predestinated to fail. There are far too many participating parties in the European Union, which makes it complicated and expensive to coordinate all of them to bargain. Also there would be high transaction costs for lawyers and translators. Therefore the European Union has to find a public policy to reduce the pollution.
The EU can either use market-based or command-and-control policies. An example for market-based policies would be to introduce a Pigovian tax on pollution. It means to detect the exact costs for the negative externality. A regulation is an option of the command-and-control policies. It is setting a limit to the pollution and every company has to adapt to it. Normally, companies prefer the Pigovian tax over regulations for many reasons. The tax gives incentives to reduce the pollution even more, while a regulation sets a goal which has to be achieved. Is the pollution level under the estimated limit, there is no need for companies to reduce their emissions more. Also Pigovian taxes require less social costs, because every company can choose their lowest possible costs.
Summary of Chapters
1. Introduction: This chapter provides an overview of the global emission problem and introduces the Kyoto Protocol as a foundation for international climate policy.
2. The natural and anthropogenic greenhouse-effect: It explains the physical basics of the greenhouse effect and differentiates between natural processes and the impact of human industrial activity.
3. The European Union Emission Trading Scheme: This section details the market-based approach of the EU ETS, analyzing the theory of pollution permits compared to taxation.
4. Empirical evaluation: The chapter evaluates the practical performance of the EU ETS, focusing on price drops, economic factors, and identified system flaws.
5. Consequences: This section discusses policy responses, such as backloading and potential structural reforms, to stabilize the system.
6. Conclusion: It summarizes the findings, noting that while the market mechanism is functioning, significant improvements are necessary to reach future climate targets.
Keywords
EU Emission Trading Scheme, Greenhouse gases, Climate policy, Pigovian tax, Pollution permits, Cap-and-Trade, Kyoto Protocol, Carbon dioxide, Market failure, Sustainability, Economic efficiency, Emissions trading, Certificate prices, Environmental regulation, Climate targets
Frequently Asked Questions
What is the core subject of this paper?
The paper focuses on the European Union Emission Trading Scheme (EU ETS), analyzing its theoretical goals and the practical challenges it faces in reducing greenhouse gas emissions.
What are the central topics covered?
The core topics include the greenhouse effect, the economics of pollution as a negative externality, market-based versus command-and-control policies, and the empirical history of permit price volatility.
What is the primary research objective?
The primary goal is to assess the effectiveness of the EU ETS in practice compared to its theoretical design and to discuss necessary adjustments to meet climate protection targets.
Which scientific methodology is applied?
The authors employ a descriptive and analytical approach, combining economic theory regarding market failures with an empirical review of historical data and policy documents.
What is covered in the main body?
The main body covers the economic theory behind the ETS, an empirical analysis of its market performance, and a review of regulatory responses to system failures like price decay.
Which keywords best characterize the work?
The work is defined by terms such as EU Emission Trading Scheme, market failure, Cap-and-Trade, environmental policy, and economic efficiency.
Why are private solutions for pollution considered inefficient in the EU?
Due to the high number of participants and the resulting transaction costs for coordination and legal processes, private bargaining is considered unfeasible for managing large-scale emissions.
How does the "backloading" proposal impact the emission market?
Backloading involves withdrawing a significant number of emission allowances from the market to support prices, aiming to increase the incentive for companies to invest in cleaner technologies.
What role did fraud play in the history of the EU ETS?
The system was exploited through VAT fraud, where emission rights were traded across borders to illegally claim tax reimbursements, although this did not directly impact the climate.
What is the significance of the "Linear Reduction Factor"?
It is a proposed adjustment mechanism to ensure that the total amount of available emission permits continues to decrease, thereby keeping the EU on track for its 2030 climate goals.
- Citar trabajo
- Ann-Sophie Theuring (Autor), Sina Hüfner (Autor), 2016, The EU-Emission Trading System. Goals, Success and Challenges, Múnich, GRIN Verlag, https://www.grin.com/document/374554
