Emissions trading: what
makes it work?
Grantham Institute, Imperial College London, London, UK
Purpose – The purpose of this paper is to critically discuss the main advantages of introducing
environmental regulation tools such as tradable permits markets.
Design/methodology/approach – Current climate policies, the negotiations under way at the
international level, and past experiences with emissions trading in the USA and Europe are critically
Findings – The creation of emissions trading schemes such as the European Union emissions trading
scheme plays a key role in the preservation of the global public good that constitutes the climate.
Research limitations/implications – This paper calls for the wider development of emissions trading
schemes in climate change policy, given a careful design and regulatory appraisal from past experiences.
Originality/value – This paper reveals that the introduction of a tradable permits market (such as in
Europe on 1 January 2005) which provides incentives to take early abatement measures, may be seen
as a decisive ﬁrst step to ﬁght climate change.
Keywords Emission, Climatology, Global warming, European legislation, Protocols
Paper type Viewpoint
Review of current climate policies
The European Union Emissions Trading Scheme (EU ETS) has been created on 1 January
2005 to reduce by 8 per cent CO
emissions in the European Union (EU) by 2012, relative
to 1990 emissions levels. This aggregated emissions reduction target in the EU has been
achieved following differentiated agreements, sharing efforts between member states
based on their potential of CO
emissions reduction. The introduction of a tradable
permits market has been decided to help member states in achieving their targets in the
Kyoto protocol. This international agreement entered into force on February 2005
following the ratiﬁcation of Iceland, and which aims at reducing the emissions of six
greenhouse gases (GHG), namely carbon dioxide, methane, nitrous oxide, ozone, water
vapour and halocarbons, considered as the main cause of climate change.
Among the members of Annex B, these agreements include CO
for 38 industrialised countries, with a global reduction of CO
emissions by 5.2 per cent.
These agreements have been fostered by the United Nations Framework Convention on
Climate Change (UNFCCC) which recognises three principles: the precautionary
principle, the principle of common but differentiated responsibilities, and
the principle of the right to development. A total of 174 countries have ratiﬁed the
protocol, with the notorious exception of the USA. The ﬁrst commitment period of
the Kyoto protocol goes from 1 January 2008 to 31 December 2012.
This political will has been reafﬁrmed at the international level during the UN
Conference that took place in Bali on December 2007, where a roadmap of negotiations
that should lead to a post-Kyoto agreement has been adopted. The USA are expected to
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Received 3 June 2009
Revised 22 June 2009
Accepted 20 July 2009
International Journal of Climate
Change Strategies and Management
Vol. 1 No. 4, 2009
q Emerald Group Publishing Limited