The EU Emissions Trading Scheme as a Driver for Future Carbon Markets

Abstract

Taking stock of the experience of the EU Emissions Trading Scheme, this CEPS Task Force report analyses its purposes and potential for improving the cost-effectiveness of mitigation actions by expanding its scope to new sectors, linking with future flexible mechanisms and enhancing the long-term price signal. The performance of the ETS sector in mitigation is important for the EU’s ability to meet its current target of 20% GHG emissions reductions by 2020 compared with a 1990 baseline and will be instrumental in meeting any increased level of reductions. The report also addresses carbon finance along with innovation and low-carbon technology deployment as possible achievements that may be expected from the ETS. It has been suggested that the ETS has made some positive impacts on abatement activities but not enough on innovation and technology deployment at the levels required for the EU’s long-term goal of keeping the global temperature increase below 2°C above pre-industrial levels. The report proposes a set of recommendations on the purposes and outcomes of carbon markets, the making of future carbon markets and the way forward for the EU ETS.