1. Consequences of the global warming
2. The principle of the European Union Emission Trading System as a market-based approach
3. European Union Emission Trading System
4. Chronological progress of the European Union Emission Trading System
Index of abbreviations:
Abbildung in dieser Leseprobe nicht enthalten
1. Consequences of the global warming
Due to the increase of greenhouse gases the average global temperature has been rising for years. This process is occurred by human activities and allows the solar energy to enter the atmosphere but not to outgo it.1
Since years the European Union campaigns for the climate protection. The reason why is the fact that the percentage of greenhouse gases, mainly carbon dioxide, in the Earth's atmosphere is higher as it was at least 800 thousand years ago.2 80% of the greenhouse gases produced in the European Union (EU) derive from the combustion of energy carrier like fossil fuels,3 which leads to the problem that the more greenhouse gases we have in the atmosphere, the less sun energy can escape it and the earth starts to heat up.
The average temperature increased since the 19th century about 1.2°C.4 However, the landmass of Europe has already been heated up about 1.4°C.5 On the one hand, even if emissions are getting slashed about 50% until 2050 compared to 1990, an increase in temperature of 2°C will hardly be avoidable.6 On the other hand, with reference to scientific findings an irreversible and potentially catastrophic transformation of the global environment is more and more likely to threaten us, if the average global warming overruns 2°C.7 Scenarios are taken as a basis in which a temperature rise up to 6°C is imaginable and current national measures could not prevent a rise of temperature by 3°C.8
That's why the European Union has such a fundamental role in setting bindingly ambitions for member states to fight the global warming with global and international, not national measures. Between 1990 and 2012 the EU achieved a decrease of greenhouse gas emission by 19% meanwhile the economy grew about 45% at the same time.9
As a result of the increasingly noticeable consequences of the climate change the policy must diminish the anthropogenic greenhouse gas emission. For that, the most approved instrument is the Emission Trading System (ETS), which all 28 EU member states plus Iceland, Liechtenstein and Norway have already inserted.10
2. The principle of the European Union Emission Trading System as a marketbased approach
Every member of the EU is a corporative actor who has to take care of its environmental policy. Nonetheless, there is one big collective project, the European Union Emission Trading System (EU ETS), which is based on a directive of the European Parliament and the European Council in 2003.
In fact, this System has its seeds in 1997 where the Kyoto protocol was launched. The protocol came into force in 2005 and bindingly defines that industrial countries must cut their emissions back about 5% until 2012 compared to 1990. Disadvantages were that on the one hand the United States of America have not ratified the protocol until today, and on the other hand that the protocol splits their participants into two groups. One group including industrial countries, who are forced to decrease their emissions and another group with emerging countries and developing countries, who are not committed to any reductions.11
Back then, two important instruments of environmental policy were developed. On the one hand the “joint implementation” where two industrialized nations invest in development aid and on the other hand the “clean development mechanism”, which allows companies to continue emitting carbon dioxide to the tune of the emissions which were stinted trough climate protection projects in newly industrializing countries like China and developing countries. This basically corresponds to the principle of the ETS to cut down on emissions where it costs least. Moreover, one hopes to export some technical know-how about climate protection.12
So instead of focusing on permitting the emission of greenhouse gases the emission trading market focuses on an environmentally friendly way to trade these emissions. Through the trading system external effects become a price. Pure air which is for instance one external effect is available for the general public and becomes polluted by factories which is why external effects have to be internalized and must get a price or rather companies should pay for their emission rights.13
Because it can be assumed that the companies will act economically, they will supposedly try to mind the external effects cost-efficiently. This means that they will invest in newer, cheaper and environmentally friendlier technologies to save emissions and prevent paying the price for the pollution. So, the tradable emission rights, which are surrendered by the government, are limiting the amount of pollution. Accordingly, the price of an allowance is determined by the demand.14
Another alternative would be to put taxes on greenhouse gases. There would also be an incentive to reduce the emissions which would also lead to an efficient avoidance of pollution. However, unlike the way mentioned above the price of emissions are dictated by the government which would mean that not the price of allowances, but the amount of pollution would be ruled by the demand. Especially when the demand is high this option would be very disadvantageous.15
3. European Union Emission Trading System
The principle of the EU ETS is easy. Carriers of European manufacturing plants have to acquire emission allowances in terms of certificates to emit greenhouse gases exempt from punishment.16
The EU ETS functions on a so-called ‘cap and trade' system,17 which means that to boil the total emissions down an upper limit for the number of these allowances is deter- mined.18 So, cap is signifying a maximum of certain greenhouse gases that can be emitted in total.
In the beginning, many certificates were being allocated to the companies at no charge. Now, due to the total emissions emitted some companies have tobuy an annually rising amount of allowances and others have to purchase them by action. In the meantime, the cap decreases each year by 1.74% so that total emissions fall.19
If a company is likely to undercut its emissions it can basically trade its allowances. Due to the fact that they are available in a limited number, they have a value. So, companies that are short of allowances or in favor to overrun their emissions either can sell their allowances to others or on the other hand simply buy additional certificates.20
The ETS ensures that the cap does not get overshoot by imposing fines if a company can not cover all its emissions with enough allowances.21 If that is the case the company needs to purchase the missing certificates either from another competitor, from a broker or on the stock exchange. Otherwise, fines to the amount of 100 euros per ton carbon dioxide can be expected. At December 22nd, 2010 the purchase price of a certificate, which allows you to emit a ton of carbon dioxide, was 14.03€ which was almost eight times lower than the fine of overshooting its emissions. Instead, to prevent paying the penalty it is also possible to support emission reducing measures or technologies for example in countries like China.22
Furthermore, the system rewards a company which is reducing its emission by allowing it to keep the spare allowances with foresight or to make profit out of it by selling the allowances.23
1 Cf. Kalb, J., Energiepolitik, 2011, p. 5 et seqq.
2 Cf. Europaische Kommission, Klimaschutz, 2014, p.1.
3 Cf. Geden,O., Fischer, S., Klimapolitk, 2008 p. 14 et seqq.
4 Cf. World Meteorological Organization, Climate, 2016, no page number.
5 Cf. Europaische Kommission, Klimaschutz, 2014, p.4.
6 Cf. Kalb, J., Deutschland und Europa - Energie- und Klimapolitik in Europa, 2011, p. 5 et seqq.
7 Cf. Europaische Kommission, Klimaschutz, 2014, p.4.
8 Cf. Geden,O., Fischer, S., Klimapolitk, 2008 p. 14 et seqq.
9 Cf. Europaische Kommission, Klimaschutz, 2014, p.4.
10 Cf. http://www.bpb.de/gesellschaft/umwelt/klimawandel/38541/emissionshandel, Accessed on 11/11/2018.
11 Cf. Muller, E., Klimapolitik, 2011, p. 13 et seqq.
12 Cf. Tuda, M., Energiepolitik, 2011, p. 32et seqq.
13 Cf. Tuda, M., Energiepolitik, 2011, p. 32 et seqq.
14 Cf. Tuda, M., Energiepolitik, 2011, p. 32 et seqq.
15 Cf. Tuda, M., Energiepolitik, 2011, p. 32 et seqq.
16 Cf. Tuda, M., Energiepolitik, 2011, p. 32 et seqq.
17 Cf. https://ec.europa.eu/clima/policies/ets_en, Accessed on 13/11/2018.
18 Cf. Europaische Kommission, Klimaschutz, 2014, p.11.
19 Cf. https://ec.europa.eu/clima/policies/ets_en, Accessed on 13/11/2018.
20 Cf. Tuda, M., Energiepolitik, 2011, p. 32 et seqq.
21 Cf. https://ec.europa.eu/clima/policies/ets_en, Accessed on 13/11/2018.
22 Cf. Tuda, M., Energiepolitik, 2011, p. 32 et seqq.
23 Cf. https://ec.europa.eu/clima/policies/ets_en, Accessed on 13/11/2018.
- Quote paper
- Patric Dettinger (Author), 2019, Climate Change. The Progress of the European Union Emission Trading System, Munich, GRIN Verlag, https://www.grin.com/document/536296