Europe's Emissions Trading System

This paper describes and evaluates the system for trading CO2 emission permits introduced by the European Union to encourage the reduction of greenhouse gas emissions to help abate climate change. This system represents a live example of a functioning trading system under the so-called cap-and-trade approach to limiting greenhouse gas emissions. Data are fully available for only one year (2008) of the fully functioning system, and that year was influenced by a sharp economic recession in the final months of the year, making evaluation difficult. Preliminary analysis suggests, however, that the trading system made only a limited contribution to reducing CO2 emissions.