The EU Emissions Trading System: Time for a radical overhaul?

• Calls for the reform of the EU ETS have been numerous over the past years and the current wave of hopeful optimism stemming from the Paris Agreement could provide a timely impetus for more efficient reform measures to be put into place. However, a sizeable political will is necessary both on the side of the Commission, as well as that of the Member States. 
• This policy paper proposes a set of recommendations, which would help to overcome some of the system’s most serious inefficiencies, namely its inflexibility, the problem of allowance over- allocation and continuously low prices of CO2 emissions, while keeping in mind the need to strike a balance between EU’s ambitious action on climate change while not jeopardizing its economic competitiveness.

​The EU cannot generate the necessary political will to make its system more ambitious if it means widening the gap between the EU and third countries, as it would exacerbate the already substantial threat of carbon leakage.

Despite being steps in the right direction, neither of these proposed initiatives will completely rectify the current developments and facilitate the desired outcome in a timely and decisive manner.

Curbing carbon leakage is essential, but as long as corporations and lobbyists remain influential, it is likely that the EU will err on the side of caution and opt for maintaining a high supply of allowances in order to avoid an exodus of economic powerhouses to third countries less committed to environmental protection.

You can download the whole publication through the PDF on the right.