The Lessons of Europe’s Carbon Trade

The EU has demonstrated that a multinational cap-and-trade scheme can reduce carbon-dioxide emissions at least cost, and that the economic side-effects are not serious. Whatever the system's flaws, these lessons are the important ones to keep in mind.

FLORENCE – As the Cancún climate change summit approaches, discussions about the viability of carbon trading systems is intensifying. The world can look to Europe as a model that is not only up and running, but that works.

In 2005, the member states of the European Union became the first to create a cap-and-trade system covering roughly half their CO2 emissions. They remain the only countries that impose a price for carbon upon a significant part of their economies. With the EU’s Emissions Trading Scheme (ETS) half-a-decade old, three broad lessons can be drawn. 

First, the system works. The ETS has achieved its objective of reducing emissions by the required amount at least cost. Emissions have been reliably estimated to be 3-5% lower in the ETS’s first three years, owing to the carbon price. This is a modest amount, but the initial ambition was also modest.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.

required

Log in

http://prosyn.org/Df0szDW;
  1. China corruption Isaac Lawrence/Getty Images

    The Next Battle in China’s War on Corruption

    • Chinese President Xi Jinping knows well the threat that corruption poses to the authority of the Communist Party of China and the state it controls. 
    • But moving beyond Xi's anti-corruption purge to build robust and lasting anti-graft institutions will not be easy, owing to enduring opportunities for bureaucratic capture.
  2. Italy unemployed demonstration SalvatoreEsposito/Barcroftimages / Barcroft Media via Getty Images

    Putting Europe’s Long-Term Unemployed Back to Work

    Across the European Union, millions of people who are willing and able to work have been unemployed for a year or longer, at great cost to social cohesion and political stability. If the EU is serious about stopping the rise of populism, it will need to do more to ensure that labor markets are working for everyone.

  3. Latin America market Federico Parra/Getty Images

    A Belt and Road for the Americas?

    In a time of global uncertainty, a vision of “made in the Americas” prosperity provides a unifying agenda for the continent. If implemented, the US could reassert its historical leadership among a group of countries that share its fundamental values, as well as an interest in inclusive economic growth and rising living standards.

  4. Startup office Mladlen Antonov/Getty Images

    How Best to Promote Research and Development

    Clearly, there is something appealing about a start-up-based innovation strategy: it feels democratic, accessible, and so California. But it is definitely not the only way to boost research and development, or even the main way, and it is certainly not the way most major innovations in the US came about during the twentieth century.

  5. Trump Trade speech Bill Pugliano/Getty Images .

    Preparing for the Trump Trade Wars

    In the first 11 months of his presidency, Donald Trump has failed to back up his words – or tweets – with action on a variety of fronts. But the rest of the world's governments, and particularly those in Asia and Europe, would be mistaken to assume that he won't follow through on his promised "America First" trade agenda.