EU Emissions Trading – Allocation Patterns and Trade Flows

Ever since 2005, the EU Emissions Trading Scheme (EU ETS) has been the core instrument of European climate policy. It covers industrial and energy facilities which produce about 40 percent of the EU's total greenhouse gas emissions and is the biggest implementation of a cap-and-trade scheme worldwide. An in-depth analysis of EU emissions trading from 2005 to 2011 is based on a database that comprises more than 10,000 installations in 25 EU member countries. The analysis found that 2008 was the only year in which a binding upper limit was specified for the emissions trading system. The other years had surplus certificates which were at times substantial and which were caused by a less than ambitious emission cap during the pilot phase (2005-2007) and a reduction in emissions in the Kyoto phase (2008-2012) consequent to the economic crisis and the resultant weak economy. During the first trading period, only a small share of the certificates issued throughout the EU was traded across borders. Similarly, certificates derived from the flexible mechanisms of the Kyoto Protocol (Certified Emission Reductions, Emission Reduction Units) are still of little importance.