July 2011| No. 10 Europe’s Emissions Trading System: An Effective and Efficient Instrument for a Low-Carbon Economy* by Hans-Joachim Ziesing 1. E MISSIONS T RADING IN E UROPE – B ACKGROUND The United Nations Framework Convention on Climate Change(UNFCCC) was adopted in 1992 and came into force in 1994. Its main purpose is to stabilise »greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system«(UNFCCC 1992). The declaration came with no obligations attached and it took another five years before the Kyoto Protocol to the UNFCCC was adopted, in December 1997. The Kyoto Protocol contains the first agreement with binding commitments, creating two clusters of countries and making it mandatory in Article 3 that: The Parties included in Annex I shall, individually or jointly, ensure that their aggregate anthropogenic carbon dioxide equivalent emissions of the greenhouse gases listed in Annex A do not exceed their assigned amounts, calculated pursuant to their quantified emission limitation and reduction commitments inscribed in Annex B and in accordance with the provisions of this Article, with a view to reducing their overall emissions of such gases by at least 5 per cent below 1990 levels in the commitment period 2008 to 2012.(Kyoto 1997) With the ratification of the protocol by the Russian Federation, the minimum number of signatories was reached and the Kyoto Protocol came into force on 16 February 2005. The Kyoto commitments cover the period 2008 to 2012 and are calculated with 1990 as base year. For some countries, future emissions growth was limited, while others agreed to an absolute reduction. The range lay between minus 8 per cent in most of the countries which committed themselves to quantified emission limitation or reduction(Annex B countries) and plus 10 per cent. The EU15 as a group committed itself to an 8 per cent reduction. To comply with this joint obligation, the Member States agreed to a differentiated»burden sharing«, with a broad range of commitments from minus 28 per cent in Luxembourg to plus 27 per cent in Portugal. It soon became obvious that the trend of actual greenhouse gas emissions in the EU15 remained too high and that at least eleven out of the fifteen Member States fell far short of their agreed share of the stabilisation pact. The European Commission then pushed the idea that emissions trading should play an important role particularly in bringing the less well Dr. Hans-Joachim Ziesing is a Senior Policy Advisor at the Ecologic Institute, Berlin. He is Managing Director of the“Working Group on Energy Balances” since 1994, responsible for the energy balances in the Federal Republic of Germany. * This paper was presented at the International Symposium“Post-Copenhagen Global Climate Cooperation: Politics, Economics and Institutional Approaches”, Shanghai, Sept. 28-29, 2010, jointly organized by the Shanghai Institutes for International Studies(SIIS) and the Friedrich-Ebert-Stiftung(FES).