From 30 August to 5 September 2009, the Foundation of German Business in cooperation with RWE organized a week-long summer academy for its scholarship holders on the present and future systems of energy supply. Benjamin Görlach, economist at Ecologic, gave a presentation on past experiences with, the current state of and the future outlook on the European Emissions Trading Scheme, one of the major EU climate policy instruments.

The basic rationale behind cap-and-trade systems is to tackle “the greatest and widest-ranging market failure ever seen” (Stern Review, 2006). The European Union implemented the scheme as a cornerstone of EU efforts to limit global temperature increase to below 2°C.

The EU emissions trading scheme limits the total amount of greenhouse gas emissions (cap) and thereby creates a scarcity signal for such emissions.. Simultaneously, emission allowances are tradable among the installations covered. In this way, the coordinating function of the market makes it possible for companies to minimize the individual and societal costs of climate protection, and to reduce emissions where it is easiest and least expensive.

The EU Emissions Trading Scheme has existed since January 2005 and entered its second phase in January 2008, which ends in 2012. For the period 2013 to 2020, European heads of state have agreed to ambitious emission reduction targets, in the fulfillment of which the EU ETS will continue to play a major role.

Benjamin Görlach’s presentation [pdf, 275 KB, German] on past experiences, the current situation and lessons learnt for the future of the scheme is available for download.