Industry-Level Emission Trading in the EU
1 Introduction
Under the Kyoto Protocol, the European Union committed itself to reducing its emission of
greenhouse gases by 8% during the period 2008-2012 as compared to 1990 emission
levels. Cost-effectiveness considerations suggest that marginal abatement costs across the
different emission sources should be equalized. This could be achieved at the international
level by a system of tradable emission permits. However, the scope and institutional design
of a tradable permit system is highly disputed among signatory parties of the Kyoto
Protocol (see e.g. Oberthür and Ott 1999). Reservations against unrestricted emission
trading range from concerns on environmental effectiveness to ethically founded
arguments that industrialized countries try " to cheaply buy themselves out". The EU
shares some of these reservations but insists at the same time that intra-EU emission
trading should be considered as domestic action and not as international emission trading -
the latter being yet undefined and unapproved under Article 17 of the Kyoto Protocol. The
latest European Commission's Green Paper on Greenhouse Gas Emission Trading within
the European Union promotes intra-EU emission trading as a key instrument for reaching
the aggregate EU target in a cost-effective way (COM 2000). In the run-up of the Kyoto
budget period, the EU contemplates on commencing an internal emission trading scheme
by 2005. With respect to the scope of an EU emission trading system, the EU considers
starting with a relatively small number of economic sectors that contribute significantly to
total emissions and exhibit larger differences in marginal abatement costs.