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Europe’s Emissions Trading System Turns 10 — A Success Worthy of Reflection

convery-frank-edfThis post was adapted from a speech Frank gave at recent conference on the European Union’s emissions trading scheme, held in Florence, Italy.

The European Union’s Emissions Trading Scheme recently marked its 10th year in operation, an anniversary worthy of reflection.

When an emissions trading system is designed well and implemented effectively, it does what it says on the tin – it delivers substantial reductions in emissions, and in ways that minimize the costs of doing so.

Requirements for success are:

  • a cap on emissions that is challenging to meet, and that reduces over time.
  • a monitoring, reporting and verification system that is credible.
  • a system for periodic review of performance and adaptation to changes in circumstances.

As permits are bought and sold, a price emerges from this trading. That signals to polluters that money can be made if emissions are reduced, which is the real genius of the system.

While there have been obstacles and setbacks over the past 10 years, by each of the measures above, Europe’s carbon trading system is a success.

I have two propositions as the system, also known as EU ETS, enters its second decade of existence.

One, that we recognize the extraordinary achievement of the EU ETS in both emotional and evidence-based terms. Two, that we recognize the extraordinary talents that have brought it into being and continued to nurture this trailblazing approach to carbon reductions.

The Elegant Simplicity of the Market

When French author Stendhal visited the Basilica of Santa Croce in Florence in 1817, he was so overcome by the beauty of Giotto’s frescoes that he began suffering heart palpitations. “Life was drained from me; I walked with the fear of falling,” he wrote.

Stendhal’s experience gave rise to a fashionable nervous complaint called “Stendhal’s syndrome” or “hyper kulturemia,” and pretty soon tourists were dropping like flies, overwhelmed by a city so beautiful that it made them faint.

Every time I think of the elegant simplicity and efficiency of the continent’s carbon market I am overcome with Hyper Tradingemia, and come close to fainting with ecstasy.

Markets and economic growth are often associated in the popular mind with environmental destruction. With emissions trading it is precisely the reverse – this market is designed to protect and enhance the environment.

Extraordinary Talent Made Market a Success

There are at least two individuals who have been critical to the achievement of the market. One is Dan Dudek, who led Environmental Defense Fund’s charge against acid rain.

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Frank Convery
Frank Convery is the Environmental Defense Fund's chief economist. He manages EDF's Office of Economic & Policy Analysis (OEPA), which comprises 10 economists. The mission of the OEPA is to drive the use of credible price signals that protect the environment and conserve common property resources in ways that are efficient and fair, and to understand and promote the use of other policy instruments where markets and pricing are not technically or politically feasible.
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