The EU ETS as an Environmental Instrument - Green Energy and Efficiency: An Economic Perspective - page 351

The EU ETS as an Environmental
Instrument

Jaime Mart lez Molinos

and Koldo Pinedo Ruiz de Arbulo

í n Juez, Carlos Gonz á

Abstract After more than 8 years of operation of the world s biggest cap and trade

scheme, Phase III of which has just been initiated, it is time to evaluate the per-
formance of the EU ETS as an environmental tool. Now is the time to analyse
whether it has been effective in inducing emissions reductions at a price marginally
lower than other tools, such as carbon taxes or command and control regulation.
This chapter analyses the decision that policymakers face in generating a strong
price signal for carbon. It describes the trend over time in the carbon price in the EU
ETS and relates its dynamics to a number of different factors. Moreover, it describes
a set of speci

'

c elements linked to the EU ETS experience with a view to drawing
lessons for the future.

1 Introduction

In the current times of nancial uncertainty in which the very concept of monetary

union as a key project of the European Union has been questioned, the strategy
maintained by Europe in recent years in the ght against Climate Change is subject to

lively debate. As Straw et al. [ 1 ] mention: “ The EU ' s ' rst mover ' strategy on climate

action has recently come under re. Critics argue that by going it alone the EU is

engaged in an act of futility, since it is responsible for only 12 % of global emissions.
They say that this effort is piling costs on business, hammering competitiveness,
and driving economic activity overseas (a process known as ' carbon leakage ' ). ”